SHAN­DUKA ON LON­MIN: ‘WE CHOSE NOT TO PAY’

As Lon­min goes cap in hand to beg for a $400m bailout from share­hold­ers in or­der to keep its strug­gling op­er­a­tions afloat, BEE part­ner Shan­duka said it will walk away from its stake in the com­pany, which is held through Incwala Resources.

Finweek English Edition - - FRONT PAGE - By Mar­cia Klein

shan­duka will not re­pay the £200m loan to buy its ef­fec­tive 9% stake in Lon­min and will for­feit its stake, leav­ing the plat­inum miner with­out suf­fi­cient black eco­nomic em­pow­er­ment share­hold­ers and a financial hole.

Mma­batho Ma boy a, Shan­duka’s stake­holder re­la­tions man­ager, says Shan­duka “chose to ex­er­cise its in­de­pen­dent busi­ness de­ci­sion to not re­pay the loan and face the con­se­quences of the loan con­di­tions. The loan con­di­tion[s] state that Lon­min has the right to take over the in­vest­ment if the loan is breached, and Shan­duka Group will for­feit both the in­vest­ment stake and its ini­tial R300m in­vest­ment into Incwala Resources [Lon­min’s BEE part­ner].”

On 2 Novem­ber, Lon­min warned that it will im­pair $1.85bn to $2bn of as­sets for the year to Septem­ber, but made no men­tion of the Shan­duka/Incwala is­sue. It has only recorded an $80m im­pair­ment on the loan so far. The strug­gling plat­inum miner also plans to raise $400m from share­hold­ers, the third such ex­er­cise in six years, and re­struc­ture debt in an at­tempt to shore up its bal­ance sheet.

re­ported in its 29 Oc­to­ber is­sue that Lon­min’s deal with Shan­duka, which was started by deputy pres­i­dent Cyril Ramaphosa in 2001, was in jeop­ardy as it had failed to meet the five-year dead­line to re­pay any of the £200m loan, which was R2.3bn at the time but is now over R5.5bn due to the rand’s de­val­u­a­tion and in­ter­est. Since pub­li­ca­tion, Shan­duka has in­di­cated it will not re­pay the loan, which arises from its 2010 pur­chase of a 50.03% stake in Incwala.

Shan­duka dis­puted that the in­vest­ment now sits in Pem­bani, say­ing it tech­ni­cally re­mains with Shan­duka as its merger with Pem­bani has not been fi­nalised de­spite it hav­ing re­ceived all the nec­es­sary reg­u­la­tory ap­proval.

Lon­min’s financial re­sults, due out on 9 Novem­ber, will show an op­er­at­ing loss of $207m be­fore the im­pair­ment charge, which is “pri­mar­ily driven by lower PGM [plat­inum group me­tal] prices and the Busi­ness Plan, which has an im­pact on fu­ture dis­counted cash flows over the life of mine busi­ness plan across the group’s op­er­a­tions”.

The busi­ness plan refers to Lon­min’s strat­egy to adapt its op­er­a­tions to the low­price en­vi­ron­ment for PGMs. It in­cludes

Shan­duka “chose to ex­er­cise its in­de­pen­dent busi­ness de­ci­sion to not re­pay the loan and face the con­se­quences of the loan con­di­tions”.

mea­sures such as a re­duc­tion in cap­i­tal ex­pen­di­ture, plac­ing i ts New­man and Hossy shafts in care and main­te­nance, cut­ting 6 000 jobs, rais­ing new eq­uity and re­struc­tur­ing its debt.

Maboya would not say why Shan­duka was not re­pay­ing the loan. “Shan­duka Group, like any other com­pany, has the right to ex­er­cise its in­de­pen­dent busi­ness de­ci­sions with­out ex­plain­ing them to any other party.”

fin­week re­ported in the Oc­to­ber is­sue that Shan­duka had not re­paid de­spite get­ting the orig­i­nal loan, an ad­di­tional R175m loan, and its share of var­i­ous div­i­dends, ad­vanced div­i­dends and loans by Lon­min since its 2010 in­vest­ment (see box). But Shan­duka has dis­puted this, say­ing pay­ments made by Lon­min to Incwala were “solely meant” for the re­pay­ment of loans Incwala al­ready had when Shan­duka in­vested in the com­pany in 2010.

Lon­min’s an­nual re­ports re­fer to div­i­dends, ad­vanced div­i­dends and loans to Incwala, but Maboya says loans to Incwala “were to ser­vice debt and meet cer­tain covenants aris­ing from loans that were in place prior to Shan­duka’s in­vest­ment in Incwala in 2010. Th­ese loans were paid to pre­vent Incwala from de­fault­ing on its loan obli­ga­tions to its lenders, which would have jeop­ar­dised the BEE struc­ture and en­dan­gered Lon­min’s min­ing li­cence and on­go­ing op­er­a­tions”.

She says that Shan­duka did not re­ceive any share of div­i­dends de­clared.

Maboya says that fin­week sug­gested Shan­duka was un­able to meet its obli­ga­tion to Lon­min, but this was not the case.

David Ngob­eni, Shan­duka’s chief financial and in­vest­ment of­fi­cer, says there were pre­ex­ist­ing loans to Incwala as well as op­er­a­tional debt, largely in Lon­min’s Akanani project, in which Incwala had a 25% in­ter­est, and that is what any sub­se­quent loans were for. He adds that Incwala paid no div­i­dends to its share­hold­ers since mid-2010.

Ac­cord­ing to Ngob­eni, Shan­duka wrote off its in­vest­ment in Lon­min in 2012, but did not walk away as it tried to keep the BEE struc­ture in place.

Lon­min’s Marikana plat­inum mine in the

North West

David Ngob­eni Chief financial of­fi­cer at

Shan­duka

Mma­batho Maboya Stake­holder re­la­tions man­ager at Shan­duka

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