ENTER THE DRAGON: Lonmin in $200m deal with Chinese firm
JOHANNESBURG – Lonmin has managed to stave off a major financial hurdle, signing a $200 million metal purchase deal with a Chinese company to pave the way for the completion of the R5 billion takeover by Sibanye-Stillwater.
The group said the $200m refinancing facility with Pangaea Investments Management (PIM) – an associate company of Hong Kong listed Jiangxi Copper Company – would provide better liquidity.
Chief executive Ben Magara said the facility, to be finalised by the end of the week, would see the world's third-largest platinum producer settling its pre-existing term loan of $150m and cancelling all its other pre-existing undrawn facilities with its rand and US dollar lender groups.
Magara said the agreement was positive and would immediately enhance the group's liquidity profile, but warned that structural problems remained.
“Regrettably, the new facilities do not address the fundamental business challenges facing Lonmin and do not offer an opportunity to avoid the announced retrenchments and shaft closures,” Magara said.
Lonmin warned in May that it would shed 12 600 jobs over the next three years as it struggled to cover its costs. About 2 000 employees have already lost their jobs, and a further 1 700 could be axed this year.
The company, where more than 44 people were killed in violent clashes during a wage strike in mid-August 2012, has struggled amid the weak global platinum price environment and soaring operating costs that have shrunk its market value by nearly 98 percent in the past five years.
The loan facility would remove the tangible net worth covenants contained in the existing debt facilities, which were waived by the lenders subject to the successful completion of the Sibanye-Stillwater merger.
It comes as Lonmin also improved its net cash position to $114m as at September 30, from $103m at September 30 last year, buoyed by the strong platinum price environment in 2018.
Lonmin’s liquidity has beaten market expectations after a UK investment bank expected Lonmin to burn cash and be in a net debt position by September because of the low platinum price combined with the relatively strong rand.
It has skated on thin ice and in January warned it was close to breaching the tangible net-worth valuation of $1.1bn stipulated in its debt covenants.
The company has run into difficulties a number of times and approached shareholders for a $400m rights offer in 2015.
The Competition Commission last month recommended that the Competition Tribunal approve it with conditions. The tribunal which provides final approval for large mergers in South Africa is scheduled to hold a hearing into the takeover next month. The South African Reserve Bank approved the deal in May.
Sibanye Stillwater chief executive Neal Froneman said the group was focused on seeing the deal through.
“We recognise Lonmin’s requirement to complete this financing transaction and we remain focused on completing the acquisition of Lonmin and delivering on our strategy of creating value for all stakeholders,” Froneman said.