Lonmin May Fail Debt Tests, Considers Accessing Equity Markets
Lonmin Plc (LMI) said it will probably miss debt conditions and may have to issue shares after a strike that led to 44 deaths halted its biggest mine.
“The balance of probabilities is that the impact on production of the current events will result in covenants being breached at the next test date on Sept. 30,” Lonmin said in a statement. Lonmin is considering its options, including issuing stock, spokeswoman Susan Vey said by mobile phone.
The shares in the third-biggest platinum producer rose 0.4 percent to 612.5 pence by the close in London, paring an advance of as much as 5 percent in intraday trading.
Police shot dead 34 people near Lonmin’s Marikana operation, about 100 kilometers (62 miles) west of South Africa’s capital, Pretoria, on Aug. 16 after a group of about 3,000 protesters gathering on a hill refused to disperse. Ten people, including two police officers, were killed in clashes around the company’s property the week before. Output at Marikana has been at a standstill since Aug. 10.
The disruption has crimped revenue needed to fund operations and service debt. Lonmin may have to consider raising $1 billion by issuing stock to current shareholders, Societe Generale SA (GLE) said on Aug. 16. The mine operator, like other South African producers of the metal, was already grappling with higher wage and power costs and lower prices.
“I don’t really see light at the end of the tunnel,” Abhishek Shukla, an analyst with Societe Generale in Bangalore, said by phone. Even after issuing stock to current shareholders, “they are not a sustainable operation.”
Thirty-three percent of the 28,000 workers at Marikana reported for duty compared with less than a third yesterday, Vey said. One in five rock-drill operators came to work, while attendance at the smelting operations and plants is at about 80 percent. Work could start “in isolated areas,” Vey said.
With each day of strike action, Lonmin is losing about 2,500 ounces of platinum, used in jewelry and auto catalysts, and an estimated $3 million, Absa Capital said on Aug. 17.
Lonmin today backed down from a threat to fire striking workers as it struggles to balance the need to calm the conflict and revive output to help meet debt obligations.
“I don’t think it will be helping anyone if Lonmin goes out and dismisses a whole lot of people for not coming to work today,” Mark Munroe, the executive vice president for mining at Lonmin, said on Johannesburg-based Talk Radio 702. “We strongly encourage people to come to work as soon as possible.”
Lonmin, which won’t take disciplinary action on employees who don’t return to work this week, had given the 3,000 striking drillers until today to return or face dismissal.
President Jacob Zuma, who declared a national week of mourning on Aug. 17, rejected criticism that his handling of the worst police action since the end of apartheid will hurt investor confidence in the world’s biggest platinum producer.
“Our observation is that nothing has happened to investor confidence,” Zuma, 70, said in an interview at his offices in Cape Town today. “I am convinced that the action that was taken so far helped to show South Africa is in control.”
The Marikana mining complex accounts for 96 percent of Lonmin’s output, according to its annual report.
“If we need to we’ll raise funds in the most appropriate manner,” Lonmin Chief Financial Officer Simon Scott said in an interview yesterday. The timing on any announcement on potential financing “depends how the situation unfolds” and when workers return, Scott said.
The violence that started Aug. 10 was the result of union rivalry, Lonmin said Aug. 16. The Association of Mineworkers and Construction Union has been recruiting members at Lonmin, at the expense of the dominant Nation Union of Mineworkers.
Northam Platinum Ltd. (NHM), which owns the Zondereinde mine, about 10 kilometers north of Marikana, is “deeply concerned” the violence in the platinum industry may spread, spokeswoman Marion Brower said in an e-mail today. There has been “some activity” from the AMCU in attracting new members at Zondereinde, where NUM is the representative union, she said.
Earlier this year, fighting between union members at Impala Platinum Holdings Ltd. (IMP)’s operation near Marikana led to the closure of the world’s largest platinum mine for six weeks and four fatalities. The company lost more than 120,000 ounces of output in the strike that started in mid-January.
Zuma will probably announce the terms of reference for a judicial commission of inquiry into the mine killings on Aug. 16 by the end of the week, spokesman Mac Maharaj said by phone.