Johannesburg - Chances of Lonmin’s survival grew increasingly slim yesterday after the company’s share price plunged as investors fled after the company said it would sell billions of shares at a massive discount.
The sharp fall came in reaction to Lonmin’s announcement on Monday that its $407 million (about R5.7 billion) rights issue would be issued at a 94 percent discount.
The company’s demise, if it does happen, will threaten the livelihood of its more than 35 000 employees.
Lonmin shares fell by as much as 45 percent yesterday to R1.80, which was the lowest level for the company since at least 1990. Lonmin’s stock on the JSE closed 33.44 percent down at R2.17, which valued the company at just R1.3bn.
Rene Hochreiter, an analyst at Noah Capital Markets in Johannesburg, said he no longer believed Lonmin would survive.
“I am no longer positive about Lonmin. The deal and the manner in which management has gone about doing it has changed my mind,” Hochreiter said.
“The rights issue shows how insane things are in South Africa. Lonmin could not make money when the platinum price was $1 800 an ounce, how are they going to make money at $900 an ounce? I cannot see how Lonmin will survive this,” Peter Major, a Cadiz analyst, said.
The world’s third-biggest platinum producer’s share price has plunged by as much as 95 percent over the past year.
Hochreiter said: “People are saying they have had enough. They are being forced to put a lot of money into this rights issue. They have two choices, either you sell or your shareholding will get diluted.”
He believed only major shareholders, including the Public Investment Corporation (PIC), which owns 7 percent of Lonmin, and Kagiso Asset Management, which owns 9 percent, would follow their rights.
The PIC had indicated previously that it would follow its rights, while Vera von Lieres, a spokeswoman for Kagiso, declined to comment.
Hochreiter believed that Lonmin would raise the cash at a massive cost to shareholders and the sell-off was an indication that investors were voting with their feet.
Sibonginkosi Nyanga, an analyst at Momentum SP Reid, said the share price had fallen as a result of the market waking up to the reality about the steep discount that the rights issue was priced at.
“We know now that the vote on Thursday is a formality. If shareholders vote against (it), the rights issue will not go ahead. If they vote for it, then Lonmin share’s price will come down further,” Nyanga said.
Lonmin shareholders are expected to vote tomorrow on the rights issue. “You can expect a lot of volatility until the rights issue closes December 10,” Hochreiter said.
Viable
Lonmin needed higher platinum prices for the business plan to be viable, Deutsche Bank analysts, including Anna Mulholland and Rob Clifford, said in note.
“Following these rights is funding a business which, at spot, is marginal and will give it up to three years of liquidity,” they added.
Lonmin’s troubles have been exacerbated by the 25 percent decline in the platinum price over the past year to just above $900 an ounce, coupled with fears that it would not meet its debt obligations.
The company was also rocked by a five-month strike over wages last year.
* Additional reporting by Bloomberg
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