Embattled Platinum Miner Lonmin Unveils $770 Million Rescue

  • Third-biggest producer to sell $400 million of new stock
  • South Africa's PIC to support and underwrite share sale

Lonmin Plc, the world’s third-largest platinum miner, seeks to raise $400 million in a share sale, its second in three years, as it moves to stave off concerns its debt is unmanageable amid a slump in prices for the precious metal.

The company, down 84 percent in London trading this year, also agreed to new debt facilities totaling $370 million that mature in 2020, it said in a statement. The shares dropped 0.9 percent to 28.75 pence in London on Wednesday, giving a market value of $261 million.

The planned sale follows $817 million of shares sold in 2012 after protests at Lonmin’s Marikana mine in South Africa led to police killing workers. The company’s stock slumped 42 percent in 2014, when mineworkers held a five-month strike before agreeing to above-inflation wage increases, and extended the slide this year as platinum prices touched the lowest since 2008.

"Fears that the company is going to fold or go out of business are unfounded," said Gavin Wood, chief investment officer of Kagiso Asset Management, Lonmin’s biggest shareholder with a 9 percent stake. "They’re very asset-rich and have a liquidity problem so it’s natural that they’re restructured and equity holders have to put in a little bit of capital."

Sale Terms

The terms of the share sale will be announced Nov. 9. HSBC Holdings Plc and JPMorgan Chase & Co. are Lonmin’s corporate brokers.

Wood declined to say whether Kagiso would take up its rights, saying the investor is "busy digesting" the details of the offer. South Africa’s Public Investment Corp., which holds about 7 percent of the stock, will support the sale and may underwrite a “material portion” beyond its entitlement, Lonmin said.

“The capital contribution is part of the PIC’s support for the platinum sector as a whole,” it said in an e-mailed response to questions. “Supporting capital raise is the best decision under the current circumstances. Not supporting Lonmin could have been potentially harmful to the industry, the communities where Lonmin operates as well as the economy at large.”

The capital raising and bank agreements “will strengthen the business and provide the group with sufficient resources for working capital and capital expenditure to sustain the business in an ongoing low platinum-group metals pricing environment,” the company said.

Business Review

Lonmin took the action following a business review designed to help it combat weak prices. Platinum sales and production costs were ahead of targets for the year ended Sept. 30 while capital expenditure, at $136 million, was almost half of what was previously forecast.

The producer confirmed its July estimate that 6,000 jobs will be cut as part of the restructuring, which is expected to be completed by September next year at a cost of 800 million rand.

"Lonmin raised $817 million in December 2012 and managed to chew through that cash in less than three years," Numis Securities Ltd. analysts wrote in a note on Wednesday. "We don’t see a strong rationale in giving a loss-making business any more money with no visibility on the company returning to profitability."

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