How Lonmin lost billions to Shanduka
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Johannesburg - Embattled Lonmin threw in hundreds of millions of rands as a lifeline to its politically connected shareholder, Shanduka, in terms of dividends and interest-free loans, the bulk of which have not been repaid.
The exercise was to keep Lonmin’s black economic empowerment (BEE) status afloat.
Read: Lonmin's mystery splurge
The world’s third-largest platinum producer has been squeezed between soaring costs and a fall in platinum prices not seen since the 2008 financial crash. Lonmin was hit harder than other producers by the platinum mining strike in 2014, South Africa’s longest and costliest.
The loans and dividends were from Lonmin’s South African subsidiary, Lonplats.
Shanduka, which was started in 2001 by Deputy President Cyril Ramaphosa, is a 26 percent shareholder in Lonplats.
Last week, Lonmin said Shanduka had received vendor financing of R2.26 billion in 2011 for Shanduka to acquire a 50.03 percent stake in Incwala Resources, the platinum producer’s designated BEE vehicle since 2004.
In acquiring this stake, Shanduka made an equity contribution of R197.5 million to Lonmin. The idea was Shanduka would repay the loan with dividends.
Due to Lonmin’s poor performance, no dividends were forthcoming.
Before the takeover of Incwala by Shanduka, Lonmin loaned Incwala R300m to buy a 26 percent stake in Lonmin’s Akanani platinum project.
By December 2015, Shanduka had failed to meet the five-year deadline to repay any of the R2.26bn loan, which was then R5.5bn due to the rand’s depreciation and interest. This was despite Shanduka receiving ordinary dividends, advanced dividends, and a preference share subscription, in addition to the loan.
Sue Vey, a spokeswoman for Lonmin, said: “In 2011, the balance of the loan to Shanduka was converted into a preference share arrangement. The preference share has not been redeemed yet.”
Shanduka merged with Pembani Group last year under the name Pembani.
When asked if the merged company still had a stake in Lonmin, Nondwe Majundana of the Pembani office, said the head of communications was currently out of the country.
Lonmin extended its decline when it wrote down the value of its net assets by as much as $2.05bn (R32bn) for the year to September.
In terms of this, $297m of Shanduka’s loan was written off to leave an outstanding amount of $102m.
Loans to Shanduka, dividends and advanced dividends amounted to R3.525bn.
However, prior to the takeover of Incwala by Shanduka, Lonmin loaned Incwala R300m in order for it to buy a 26 percent stake in Lonmin’s Akanani platinum project.
Lonmin said at the time that the loan was meant to ensure Incwala could meet repayments on bank loans to buy the stake.
Vey said last week: “Repayment of the loans (to Incwala and Shanduka) will be made from future dividend distributions.”
She said the loans were made to Incwala from 2009, prior to Shanduka taking over Incwala, to extinguish preferential debt, thereby preventing a default and protecting the Lonmin BEE structure.
Vey said Incwala had received significant dividends from Lonplats, subsequent to the the 2014 BEE transaction for Incwala to become a 7 percent empowerment partner to Lonmin.
She said these dividends were payable as a result of the vendor finance put in place to finance the transaction.
“This share had almost been redeemed at the time Incwala decided to purchase a 26 percent equity interest in Akanani in 2008. Incwala went ahead and made the acquisition. Following the global meltdown in late 2008, there was limited Lonplats dividend flow to service the refinanced Incwala preference share structure.”
Last November, Lonmin announced a bailout process from its shareholders, its third in six years, the first having been in 2009. In the three equity-raising processes, the proceeds were to recapitalise Lonmin and lower its debt.
The 2009 process was to raise $457m equity from investors and the refinancing of its debt of $575m.
In the process in November, Lonmin raised $373m through another rights issue, of which $43m was remaining by the end of January.