Lonmin had to resume production by Friday or shut down high-cost operations as it was likely to breach its financial covenants because of the three-week long illegal strike at its Marikana mine near Rustenburg, analysts said yesterday.
Lonmin’s position is becoming increasingly precarious as its management, worker representatives, the Department of Labour and unions work to establish a peace accord and bring stability to the mine, getting employees back to work.
The talks reached a stalemate last night.
“Lonmin management have to make a decision in 30 days or a decision is going to be made for them. The banks are going to cut credit by the end of the month,” Peter Major of Cadiz Corporate Solutions said.
In a case with similarities to the Marikana violence last month, four people were shot and injured by security officers using rubber bullets to disperse an illegal protest at Gold One’s Modder East mine yesterday.
Gold One said the four were among a crowd of 60 protesters comprising ex-employees who were dismissed for participating in an illegal strike in June and some former employees of Pamodzi Gold East Rand.
The 12 000 workers at Gold Fields’ Kloof Driefontein Complex (KDC) mine who downed tools on Friday have not returned to work. The employees are demanding that the branch leadership of the National Union of Mineworkers step down. They are also protesting against a compulsory funeral benefit deduction.
Analysts’ concerns about Lonmin’s ability to meet its debt obligations stem from its latest annual report, in which the company said it had consolidated its bank borrowing with new facilities of $945 million (R7.9 billion). This comprised $700m supported by BNP Paribas, Citigroup, HSBC, JPMorgan Chase, Lloyds TSB Bank, Royal Bank of Scotland and Standard Chartered.
Another R660m was held by FirstRand, Investec and Standard Bank and those covenants required a maximum ratio of net debt to earnings before interest, tax, depreciation, and amortisation of 3.5 times.
“Shareholders, investors, banks, suppliers and others are all getting worried about Lonmin’s future. That is why the share price is down 90 percent, and people are reluctant to hold it, and management doesn’t know what else to do right now. But who does? Virtually no one knows what to do,” Major said.
Marikana has been shut since 34 striking employees were killed in a confrontation with police on August 16. Ten people including two police officers were killed in clashes in the preceding week at the mine.
The illegal strike was sparked by a protest by 3 000 rock drill operators who demanded a R12 500 salary. The company reported 4.5 percent work attendance yesterday.
“If they don’t open shafts in four days, the consequences would mean shutting down completely. They have covenants that they are going to breach, and there is no ways they’ll meet these obligations because they are fighting internal fires instead of producing,” said an analyst.
Alison Turner a mining analyst with Panmure Gordon, said Lonmin might have to consider closing down high cost shafts. “We need to bear in mind that all they do is mine platinum in South Africa, and wholesale closure is not an option. In the long term they may look at closing one or two high cost shafts in Marikana.”
Lonmin said it was talking to banks on the issue of its balance sheet.
In July Lonmin said capital expenditure would be reduced to $250m for each of the 2013 and 2014 financial years, a 40 percent reduction on the capital expenditure of $430m in the current financial year.
Emma Crawshaw, a spokeswoman for Lonmin, said she could not speculate on the future of the company, but the focus was on the peace accord.
“Illegal protests are spreading like a bad bacteria, they are out of control. During the 1987 mining protest led by Cyril Ramaphosa everybody was on strike, But it was a planned and reasonably managed and ‘legal strike’,” Major said.
“You don’t know who to talk to. A guy carrying a panga in his one hand and a knobkierie in the other does not want to negotiate, he wants to dictate!.”
Lonmin shares closed 0.03 percent lower at R77.43.
Talks aimed at establishing a peace accord at Lonmin’s Marikana mine reached a stalemate late last night and are likely to collapse.
“There was no progress at the meeting. No agreement was reached because workers who were on the hill don’t want a peace accord. Their demand is R12 500 salary, or Lonmin must close otherwise Chinese will takeover,” Lesiba Seshoka, the spokesman for the National Union of Mineworkers (NUM) said last night.
He said the NUM had to persuade the Department of Labour and the Commission for Conciliation, Mediation and Arbitration against withdrawing from the talks because of lack of progress.
But Labour Department spokesman Page Boikanyo told Bloomberg the talks had been adjourned until tomorrow.