Lonmin Says May 'Cease Trading' If $400 Million Share Sale Fails

  • New shares will be priced at a `significant discount'
  • Company unlikely to survive low-price environment: Vunani

Lonmin Plc, the world’s third-biggest platinum producer, threatened to shut down if it doesn’t get shareholder funding, potentially becoming the biggest casualty of the commodity slump so far.

QuickTake The Politics of Platinum

The 106-year-old company wants to raise $400 million by selling new stock and refinance $370 million in debt to stem losses from the collapse in metals prices. While South Africa’s Public Investment Corp., one of the company’s biggest shareholders, supports the share sale, the statement shows how precarious Lonmin’s situation has become.

“The proposed business plan, which includes the plan to shut high-cost shafts, is unlikely to result in the group surviving the current low platinum-group-metal price environment,” Hurbey Geldenhuys, a mining analyst at Vunani Securities Pty Ltd. in Johannesburg, said in an e-mailed note to clients.

At stake are the jobs of more than 35,000 employees and contractors, all of whom are in South Africa, which has a 25.5 percent unemployment rate. Also at risk is the future of a company that for decades was run by British industrialist Roland “Tiny” Rowland, who was described by U.K. Prime Minister Edward Heath as the “unacceptable face of capitalism.” While the business once spanned gold mines and newspapers, it has shrunk to a market value of $220 million, compared with $13 billion in 2007.

Lonmin shares fell 6.9 percent to 23.75 pence by 2:57 p.m. in London. The stock is down 87 percent this year.

Shareholders will vote on whether to proceed with the rights issue and debt facilities at a meeting on Nov. 19. If they reject the plans, “the group may have to cease trading and shareholders could lose the entire value of their investment,” Lonmin said in a letter posted on its website Tuesday.

The company has already cut jobs and closed shafts to reduce costs as platinum prices tumbled to a six-year low. The share sale is the second since 2012, when Lonmin raised $817 million after protests at its Marikana operation, which led to police killing 34 people in a single day. Mineworkers then held a five-month strike at its operations in 2014 before agreeing to above-inflation wage increases.

Earlier this week, the company said it will write down the value of its assets by more than half after taking an impairment of as much as $2.05 billion.

‘Significant Discount’

The share sale will be at a “significant discount” to the price prior to the underwriting deal, the company said. South Africa’s Public Investment Corp., which has about a 7 percent stake, may underwrite a “material portion” beyond its entitlement, according to Lonmin.

Raising the entire $400 million “is going to be tricky,” Ben Davis, a mining analyst at Liberum Capital Ltd. in London, said by phone. “It certainly was a good win to get the PIC on board but it wasn’t explicit enough in how much it would underwrite apart from its own portion.”

Lonmin’s competitors such as Anglo American Platinum Ltd., the largest producer, and Impala Platinum Holdings Ltd. have stronger balance sheets and offer investors better prospects for growth, Geldenhuys, the analyst at Vunani Securities, said by phone.

The Bapo traditional community in South Africa, which acquired a 2.24 percent stake in Lonmin last year as part of a black economic empowerment deal, cannot pay for new shares, the producer said. Shareholders will be asked to approve the granting of new shares to the group to maintain the proportion of its holding, Lonmin said.

Regulations in South Africa require that mines should be owned at least 26 percent by black individuals or companies as part of a policy to redress economic imbalances created under whites-only apartheid rule.

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