Lonmin ‘has its hands full’
• Magara treads carefully around possibility of rights issue and points to positive trends and turnaround efforts
Lonmin’s board is so completely focused on finalising talks to acquire fresh money as well as selling excess processing capacity to third parties and finding buyers for two assets, that it has not been able to apply its mind to its annual results.
Lonmin’s board is so completely focused on finalising talks to acquire fresh money as well as selling excess processing capacity to third parties and finding buyers for two assets that it has not been able to apply its mind to its annual results.
While CE Ben Magara carefully phrases his answer about whether a fourth rights issue is on the cards seeing that the share price has fallen more than a third since the announcement on Friday of delayed results and uncertainty in the market about what this entails, it is unlikely shareholders would back such a proposal, forcing the company to seek alternatives.
“We are doing all we can to have a self-help business that is cash-generative in these low prices,” he said.
The options open to Lonmin, which the board is already working on and advancing as quickly as it can, are selling assets, selling spare capacity at its concentrators and refineries for cash for use by third parties, and raising either project or developmental funding for its two key projects — the MK2 extension at its Rowland mine and completing its partially built K4 mine, the potential jewel in Lonmin’s asset base.
Closing Rowland with its 6,000 employees would probably cost about R1bn. The alternative is to spend R1.2bn over three years on MK2 and save those jobs, making for an easier discussion with funders.
“We are involved in encouraging discussions on all the three key value drivers of our operational review, but we are not at a phase where I can bed them down and put them in my financial statements. Our lenders have given us time until March so we have this opportunity to clean up all this and have real and significant outcomes,” Magara said, referring to a temporary waiver of measuring six-monthly debt covenants.
“We announced this review in August .... We are very encouraged by the proposals we’ve received and are discussing.”
Analysts pointed out that the deep reservations around the delayed results and the closing in on the tangible net worth of the company to $1.1bn, a level below which it may not fall as stipulated in debt covenants, had overshadowed the largely positive news about the operational improvements during the financial year to end-September.
The inclusion of the whole of the Pandora mine after buying out partners Anglo American Platinum and Northam would give a $100m uplift to the tangible net worth of Lonmin, while every 10c weakening of the rand against the dollar provided $50m more, Magara said.
Lonmin has under its listing obligations until the end of January to deliver its full-year results to the market, giving it three months to finalise all or part of the transactions to recapitalise itself.
“We’ve been working very hard to make sure this operational turnaround sticks,” Magara said.
Lonmin’s shareholders are skittish and the slightest hint of bad news sends them running.
Witness the latest statement from one of the world’s major platinum producers, saying it was delaying its full-year results until it had finalised aspects of its asset review.
The share price plunged more than a third in two trading days after Friday’s statement.
Lonmin’s shares dwindled to almost nothing during 2015, a particularly horrible financial and operational year for the company. It was forced into a rights issues of $400m, which was offered at an enormous discount and was dilutive for existing shareholders.
Some analysts said at the time Lonmin would return to the market yet again because it had not done enough to restructure the business, weeding out unprofitable mines and the heavy capital expenditure facing the company to bring two key projects into production.
Could Lonmin again be on the cusp of a rights issue?
It may well be, but with the fall in the share price, investors are sending Lonmin a clear message: no chance.
The options left open to Lonmin are to bring a financial or operating partner into its Rowland and K4 mines, which need chunky capital expenditure to bring projects at both assets into production, the sale of noncore assets — the Akanani and Limpopo deposits — and the sale of a portion of its excess capacity in processing ore and refining base and precious metals.
The question is who in the current platinum group metals environment has the appetite to join Lonmin or buy its discards.
Sadly, James Gubb’s first brush with protest art looks likely to be his only one, so no chance of a Banksymeets-financial-sector body of artwork on the horizon.
It’s not just that Gubb has become one of the most famous names in the local business community, which means no chance of Banksy-style anonymity. He also seems uninterested in giving up his day job as a trader for the uncertain future of an artist.
Gubb, who became an overnight media sensation when he was slapped with a R100,000 fine by the Financial Services Board (FSB) for desecrating the sanctity of the JSE, has produced a remarkable piece of performance/protest art, one that deserves a place in the Zeitz Museum of Contemporary Art Africa.
The trader was understandably taken aback by the vigour with which the FSB is enforcing its rules and slapping him with the maximum fine possible but is prepared to pay it. The grim alternative is to incur the cost and inevitable drawn-out pain of a legal battle.
Crowd-funding efforts are already under way to assist him. One obvious way to help with the funding would be to make available a limited edition of signed copies of the artwork in exchange for a donation. (Surely the ideal 2017 Christmas present?) If Gubb felt so inclined, the donations could be passed on to another worthy cause, such as Corruption Watch.
Presumably, despite their heavy-handed “rules is rules” response, the JSE and FSB are embarrassed by the incident. Gubb proved that Oakbay Resources should never have been listed. It is Oakbay and its various professional advisory services that should have been fined, not Gubb. Indeed we all, including the JSE and FSB, owe him a debt of gratitude for making it so apparent.