Lonmin Falls to Record as Investors Exit Before Rights Offer

  • Platinum producer extends rout on planned sale of rights
  • Shares in London, Johannesburg suffer biggest ever declines

Lonmin Plc sank to a record-low for a second day as investors fled after the third-biggest platinum producer said it would sell billions of shares at a fraction of the market price.

The stock dropped 29 percent in London, the most since at least 1988. It slid 33 percent in Johannesburg, also the largest decline ever for Lonmin’s secondary listing. 

The collapse has accelerated since Nov. 2, with the stock down more than 15 percent in London in each of the last four days. It sank 18 percent on Monday as Lonmin said it would offer $407 million of shares at a 94 percent discount to the prior market close. The rights offer is part of efforts to fend off an existential threat from sinking metals prices.

Lonmin has attracted many speculative buyers over the length of a 95 percent slump in its value this year and as Glencore Plc offloaded its almost quarter stake in the producer, said Rene Hochreiter, an analyst at Noah Capital Markets (Pty) Ltd. in Johannesburg.

Cost Cuts

“You can expect a lot of volatility until” the rights issue closes Dec. 10, he said. “The weak holders will be out and the guys who are going to follow their rights will be in.”

Lonmin is cutting costs and jobs, and closing shafts to try to weather a more than 50 percent drop in platinum prices since a high in August 2011. While shareholders are facing a deep discount to maintain their stakes in the company, three banks, including HSBC Holdings Plc, guaranteed the share sale that aims to unlock new financing for the producer.

The shares closed at 9.4 pence in London, valuing the company at about $83 million.

Lonmin needs higher platinum prices for the business plan to be viable, Deutsche Bank AG analysts including Anna Mulholland and Rob Clifford said in an e-mailed note to clients on Tuesday.

“Following these rights is funding a business which, at spot, is marginal and will give it up to three years of liquidity,” they said.

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