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Lonmin’s mystery splurge

A Lonmin sign welcomes visitors to the Marikana platinum mine. Of the $373 million raised in December's rights issue, only $43 million is left at this point in time, according to notes. File picture: Waldo Swiegers, Bloomberg

A Lonmin sign welcomes visitors to the Marikana platinum mine. Of the $373 million raised in December's rights issue, only $43 million is left at this point in time, according to notes. File picture: Waldo Swiegers, Bloomberg

Published Feb 22, 2016


Johannesburg - Embattled platinum producer Lonmin has guzzled the bulk of the $373 million (R5.74 billion) it raised through its controversial massively discounted rights issue in December for its critically needed refinancing.

According to notes of middle executives, of the $373m the company raised through the rights issue, only $43m is left.

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Read: 'Parts of SA mining sector in the ICU'

However, it is not clear if the notes are official, but their genuineness is supported by a Lonmin report which says there was only net cash of $69m as of December 31.

Jimmy Gama, the national treasurer of the Association of Mineworkers and Construction Union, confirmed that only $43m was left in Lonmin’s kitty.

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He said this was disclosed by the chief executive Ben Magara when he briefed the union about two weeks ago. “We were shocked and demanded that there be another briefing to explain where the money had been spent,” Gama said.

The notes said the first quarter performance was extremely poor.

“We haven’t had such a bad quarter (three months to December 31) in a very long time. In fact, it was 15 percent less than this time last year (2014) on both platinum and PGM (platinum group metals) ounces,” read the notes.

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“As a result, we are behind on our business plan. The banks supported our rights issue last year on condition we met our business plan.

“They and we were very clear on what had to happen: strict safety and production targets and strict budgetary controls or face the consequences.”

Bailed out

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Lonmin, the world’s biggest platinum producer last year issued its massively discounted R5.7bn recapitalisation after shareholders gave their support to the rights issues, which essentially bailed out the world’s third-biggest platinum producer.

The move came after almost 88 percent of more than half of the Lonmin shareholders who participated in the company’s annual general meeting in London backed the recapitalisation.

On Friday, the stock, which has lost more than 90 percent of its value since last year, closed 0.47 percent lower at R17.10.

The notes continued: “In the last quarter (to December 31) we sold our PGM products for R10 859 per ounce (the basket price). But it cost us R10 949 to produce just one ounce, not counting the capital spend.

“If we include capital, which we have to do as it is the cost of maintaining and expanding our infrastructure, it cost us R11 749 to produce one ounce, which was then sold for R10 859.”

The author, who seems sympathetic to management, said Lonmin was currently losing about R890 for every ounce it produced.

“This means we are burning through all the money our shareholders gave us at the end of last year.”

The notes said it was unacceptable that amid this crisis, production was actually falling.

“In January, we were 19 percent below budget, with every shaft except E1 and Saffy not making the mark.

“Section 54 safety stoppages are playing a big role here: 200 000 tons lost in this quarter alone.”

The Lonmin report for the quarter to December 31 said production lost due to Section 54 safety stoppages totalled 197 000 tons higher than the prior year period.

The beleaguered platinum producer’s share price dropped more than 85 percent in response to shareholders’ decision in November to approve the rights issue.


The proceeds were to recapitalise Lonmin urgently and lower its debt, allowing it to enact its restructuring plan of cutting down to four key mines from 11, laying off 6 000 workers and lowering its production to 650 000 ounces of platinum this year from 750 000 ounces in the financial year to end of September 2015.

Lonmin sold 7.85 billion out of nearly 27 billion shares at a 94 percent discount when the rights issue was announced.

Owners of almost 30 percent of Lonmin’s shares reportedly opted to be “diluted into obscurity”, rather than follow the massively discounted rights issue.

Sue Vey, a spokeswoman for Lonmin in South Africa, said on Friday that an e-mail from Business Report had been referred to the company’s headquarters in London. However, by the time of going to press, the company had not responded.

The report said Lonmin had used part of the proceeds from the rights issue to fully repay the amounts drawn on the revolving credit facilities, leaving $150m fully drawn on the dollar term loan, and $203m in revolving credit facilities available for the company to draw on when required.


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