HARARE- Lonmin, the world's third-largest platinum producer soared 23.38% to trade at R15.99 a share on the JSE by noon on Friday as the market warmed to news that lenders had granted it a 12-month "breather" for its financial covenants.
The share price later closed.
The South African platinum producer, which is closing a number of old shafts after grappling with inflationary cost pressures that are confronting the platinum mining industry, said on Friday that banks had waived two debt covenants from 30 September 2017 to 30 March 2018.
The waiver paves the way for the extension of the Saffy shaft without having to spend R2.6 billion of capital expenditure, of which R1.6 billion would have been required over the next four years, it said.
As part of the conditions to the waiver, Lonmin said it had agreed to press on with its operational review, which included a R500 million trim of overhead costs by the end of September 2018.
“The company has also agreed with its lending banks, as a condition to the waiver, to cancel its revolving B2 facilities of $21 million and to leave undrawn approximately $200 million of remaining revolving credit facilities during the Waiver Period,” the company said.
Lonmin warned in May that it was at risk of breaking its financial covenants after it operating loss for widened to $181 million in the six months ended March 2017 owing to $146 million impairment.
“Any future adverse movements in key assumptions could result in a further impairment that could impact this covenant,” flagged Lonmin.
The company's warning prompted KPMG, controversial auditing firm to add its voice to concerns about the company's future.
KPMG reportedly said in May that the financial statements indicated 'the existence of a material uncertainty which may cast significant doubt on the group’s ability to continue as a going concern”.
Lonmin's debt covenants require that the consolidated tangible net worth (TNW) not be less than $1.1 billion at any time. Lonmin said in May that as of 31 March 2017, its TNW was $1.43bN and the headroom in the TNW covenant was $334 million.
Sibonginkosi Nyanga, an analyst at Momentum Securities, said on Friday that Lonmin’s risk for breaching its financial covenants had been reduced for now.
"All eyes had been on Lonmin's balance sheet and covenant tests following the auditor’s report in May.
"Today's announcement should be viewed by the market as a positive as this waiver gives Lonmin some breathing room because it relaxes some balance sheet pressure,” said
Nyanga.Seleho Tsatsi, an investment researcher at Anchor Capital, said the waiver was a positive market update.
“Large parts of the market probably view the balance sheet risk in Lonmin as precluding it from serious consideration. They’re still in a tough spot but they’ve bought a little extra breathing room,” he said.
The immediate, short-term financial risk to Lonmin as an entity appears to have subsided for now with the weakening of the and the waiver of the tangible net worth covenant,” said Tsatsi.
Lonmin also said on Friday it had received approval from the Department of Mineral Resources for both its Section 11 applications to acquire the interests of Anglo American Platinum and Northam Platinum in the Pandora joint venture. This followed the Competition Tribunal approval received in May.