Johannesburg - Lonmin, with its plunging share price, is unlikely to attract suitors looking for a cheap takeover, amid platinum metal prices at multiyear lows, legacy issues, high cost inflation and low investor confidence in the company.
A $407 million (R5.78 billion) rights issue announced this month that is aimed at boosting its balance sheet and cushioning the blow of the impact of the 27 percent decline of the platinum price over the past year, saw Lonmin’s share price fall by as much as 45 percent on Tuesday.
Lonmin’s share price yesterday lost a further 6.42 percent to close at R2.04, which valued the company at R1.2bn, and over the past year, the share price has fallen by 94 percent.
A factor that will put off prospective buyers is that the company has been raking up losses. The company posted a $207m loss before impairment charges of $2bn in the year to September.
Marc Elliott, an analyst at Investec Securities in London, said it could be a struggle to take over Lonmin, given the depressed platinum price.
The spot platinum price yesterday fell as low as $872.85 an ounce, which was the metal’s lowest level since late 2008. Platinum was last quoted down 0.85 percent at $876.63 an ounce.
Unlikely
“There are a lot of unknowns, and uncertainties around the depressed platinum price,” Elliott said, adding that the entire platinum industry was in a difficult space. He believed Anglo American Platinum (Amplats) and Impala Platinum, the world’s biggest and second-biggest platinum producers, respectively, were unlikely to take over Lonmin.
“Amplats and Impala have enough on their plate. I don’t think they need additional challenges,” said Elliott, adding that “Lonmin is caught between a rock and a hard place”.
Peter Major, an analyst at Cadiz Corporate Solutions, said: “Why would people run Lonmin? Nobody can run that company.”
Adrian Williams, an analyst at Avior Capital Markets, also doubted Lonmin could turn into the target of a takeover.
“Lonmin’s assets require a lot of capital, and anyone who purchases Lonmin takes over its legacy issues,” said Williams.
The difficult labour issues that have dogged Lonmin are also likely to put off investors.
But even if an outright takeover of the whole company does not take place because of the inherent risks, it is still possible, however, that some suitors may find it attractive to buy Lonmin in pieces.
In other words, its value may lie not in the sum of its parts but in its parts.
Lonmin was rocked by a five-month wage strike last year, and more than 40 people were killed during violent protests over wages at its Marikana Mine in mid-August 2012.
Williams believed that potentially Sibanye Gold might be interested in taking over Lonmin’s concentrator and refining assets, but that Amplats would have no interest.
“Taking over Lonmin would go against Amplats’ goal of increasing its production of mechanised ounces,” he said.
Sibanye Gold has been bulking up on platinum after agreeing to buy Amplats’ Rustenburg operations in October and announcing plans to acquire Aquarius Platinum a month later. Sibanye’s spokesman, James Wellsted, said on Wednesday that Lonmin was “complex”.
“I think we have consistently said that we would consider any options that could be value accretive and support our dividend strategy and vision of creating superior value for all stakeholders.
“That said… It is obviously a very complex issue and reading the different reports would suggest that the value is not that obvious or apparent to everyone,” said Wellsted.
Impala made a bid to take over Lonmin in the mid-1990s, but the bid was prevented by the European competition authorities over concerns of the creation of a monopoly.
Precluded
Impala spokesman Johan Theron said the company made a bid to acquire Lonmin in the past, but under different circumstances and in a different time.
“We were precluded from the deal because of anti-competitive concerns by European authorities,” he added.
“We have just finished raising cash to boost our shafts in Rustenburg,” he said, referring to the R4bn capital raise to bolster the company’s balance sheet. “Our priority is to focus on implementing our strategy. It is not for us to comment on our competition. Everybody in the platinum belt is in a difficult space,” said Theron.
Lonmin spokeswoman Sue Vey said she did not think the firm would be the subject of merger and acquisition activity.
“The question of whether Lonmin could be bought by, or merged with, another entity is something we cannot answer now or at any time.
“But what we are certain of is that if the rights issue is approved, then Lonmin can better sustain the continued weakness in platinum group metals (PGM) prices and it will be in a better position to benefit from any recovery in PGM prices in the medium to long term,” said Vey.
In some quarters, there have been calls for the government to buy or bail out Lonmin to save jobs. The National Union of Mineworkers’ health and safety secretary, Eric Gcilitshana, said the union was ”really worried”.
Gcilitshana noted that the vote by Lonmin shareholders regarding the rights issue would impact on more than 35 000 employees.
“We are appealing to shareholders to vote in favour of the cash injection to save jobs… If they are against the financial inject, the government has to step in by giving Lonmin a loan, just like it did with Volkswagen in Port Elizabeth,” said Gcilitshana.
The Association of Mineworkers and Construction Union was not available for comment yesterday, but had said previously that the government should revoke Lonmin’s mining licence as some of its challenges were as a result of management blunders.
Last month, Mineral Resources Minister Mosebenzi Zwane said that the government planned to use the rout in commodities prices to buy assets to widen public participation in the mining industry.
TIMELINE
November 9: Lonmin says its $407 million (R5.78 billion) rights issue would be be discounted by 94 percent.
November 2: Lonmin indicates that it will likely report an operating loss of $207m before impairment charges of between $1.8bn and $2bn.
October 21: Lonmin announces plans to raise around $400m and, at the same time, enter into amended debt facilities with its lending banks for a total of $370m, maturing in May 2020, conditional on credit committee approvals.
July 24: Lonmin says it will close or mothball high production cost shafts, which will affect 6 000 jobs.
June 25: The Farlam Commission of Enquiry finds Lonmin wanting and that the company had failed to provide enough safety measures for employees, especially the non-striking workers, which the company had compelled to go to work despite the violence and intimidation during strike.
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