Fourth rights issue is no option for Lonmin

There’s talk in the market of Lonmin, the embattled platinum miner, conducting a fourth rights issue, but the dismal uptake of the third rights issue puts that speculation into context and shows it’s just not a viable option. Lonmin needs cash fast. It’s clear that Lonmin is talking about everything but a rights issue after the $400m rights issue at the end of 2015, a year in which its share price plunged 98% to its lowest yet. That rights issue was discounted 94% to just a single penny on the JSE, yet was only taken up by 71% of shareholders as almost 27-billion shares were issued and then quickly consolidated.

Banks will not underwrite another rights issue if they have to pay for such a large chunk of the funding themselves — not to mention large shareholders such as the Public Investment Corporation (PIC), a 30% shareholder — following its rights yet again or underwriting the issue again, further exposing itself to a poor investment.

The sale of the Akanani and Limpopo assets is an obvious way to raise cash. Bringing funders into the R1.2bn MK2 life extension project at the Rowland mine shouldn’t be too difficult. Finding the billions that are needed to complete the K4 mine is more difficult.

The third avenue to raise money is to sell excess processing capacity at concentrators, smelters and refineries. With nearly all mining companies tied into concentrate-supply agreements, it will be interesting to see who buys into this scheme.

The voting results of Group Five’s annual general meeting this week point to simmering tension among shareholders on the issue of appropriateness of certain directors. An unusually high 33.13% of shareholders voted against Michael Upton’s election as a member of the group audit committee; 15.3% voted against appointing John Job to the committee; and 15.30% voted against appointing Nazeem Martin to the audit committee.

In July, the group was forced to hold an extraordinary general meeting when Allan Gray, with a holding of just more than 25%, exercised its rights in terms of section 61 of the Companies Act. The fund manager said it had called the meeting due to concerns about a series of top-level executive resignations. Speculation about the sale of key operational units had also caused shareholder concern. Allan Gray forced the resignation of all nonexecutive board members and nominated five replacements who were to be voted on at the July meeting.

The most controversial of the nominees was Upton, a senior executive at Group Five during the period the construction firm was found guilty of anticompetitive activity by the competition authorities. Job was also one of Allan Gray’s nominees. The lead-up to the end-July meeting saw some increasingly fractious interactions between the major shareholders led on the one side by Allan Gray and on the other by the Public Investment Corporation (PIC), which put forward three board nominees. Edward Williams, who was one of PIC-aligned Mazi Capital nominees, only received support from 57.7% of shareholders at the EGM. At this week’s AGM, his re-election was supported by 88.8% of shareholders.

Group Five’s share price moves prove there are rarely short-term returns from shareholder activism. The share price, which was touching R20 at the time of the July meeting, is trading at R11.65, up from the low of R7.86 in early October.