Lonmin sells the ladder, then digs a deeper hole

What is clear from the latest statement from Lonmin, one of the world’s leading platinum producers, is that it has its back to the wall and has largely run out of options to keep the company going and to put in place some lower-cost growth.

Lonmin needs money and it just isn’t generating enough from its mines, where it has rising inflation on its input costs including labour, against a largely stagnant price for the basket of minerals it produces.

Shareholders sent a blunt message to the board during the heavily discounted $400m rights issue in 2015, with more than a quarter of shares on offer not taken up by shareholders burnt by a 95% fall in the share price that year. It was the third rights issue in a few years. City analysts have suggested there could be a fourth soon if Lonmin breaches its debt covenant by its financial year-end.

Lonmin has now turned to its very essence to raise capital and to bring in low-cost production, particularly at its partially built K4 shaft, looking at bringing in partners to help finance the mine to completion and for a new project at Rowland.

It is also putting up for sale two longer-term projects at the mothballed Limpopo mine and the Akanani prospect. Of interest is the 500,000oz of processing capacity it is throwing open to sell to the market. Sibanye Gold, with its neighbouring Rustenburg mines, is a real contender for this sale, which fits in with the company’s stated mine-to-market strategy.

When a company starts eroding the very core of its business after cutting thousands of jobs and shutting older, unprofitable shafts and when it has exhausted its shareholders’ capacity and patience, the warning signs are surely flashing.

It looks as though Hosken Consolidated Investments (HCI) might be bracing itself for another appraisal action by disgruntled shareholders. This time it is shareholders in La Concorde (previously KWV) who are expected to ask for cash rather than wait to see what HCI subsidiary Niveus does with the assets it buys with the R1.2bn it got from the sale of KWV liquor assets to Visari.

On Friday, Johnny Copelyn chairman of HCI, which controls La Concorde through Niveus, said HCI would make an offer to shareholders who wanted out.

Chances are the offer will not come close to the value of the cash and legacy assets. So, if La Concorde shareholders want something near fair value, they will have to go the appraisal route. If they do, it will be the third appraisal action HCI has faced in the past 12 months. Shareholders in Hospitality Property Fund launched one earlier in 2017 at about the time of the deal with Tsogo Sun, but administrative errors saw it fail.

So far, the only appraisal action involving a listed firm is the one launched by KWV shareholder Albie Cilliers in 2016. Cilliers is caught up in a legal battle over fair value for his KWV shares, having exercised his appraisal rights after Visari purchased the KWV assets from Niveus. He rejected the R13.40 a share offered by Niveus, believing it should be north of R21. Getting anywhere close is going to take guts and determination as HCI-Niveus is doing all it can to keep Cilliers’s action near to drowning in legal argument. HCI-Niveus have lots more money than Cilliers, but have met their match when it comes to guts and determination.