The si­lence on that R5.8 bil­lion... Lon­min is keep­ing mum on Shan­duka’s non-re­pay­ment of a huge loan at a time when the plat­inum miner is cut­ting 6 000 jobs, idling shafts and ask­ing share­hold­ers for a $407m bailout to keep the busi­ness afloat.

Finweek English Edition - - OPINION - Ed­i­to­rial@fin­week.co.za is a fi­nan­cial jour­nal­ist who has worked in re­port­ing and edit­ing roles at and Me­dia24.

itis sur­pris­ing that Lon­min has gone to ground on the ma­te­rial is­sue of the non-re­pay­ment of a loan to Shan­duka, which has es­ca­lated from R2.3bn in 2010 to a mas­sive R5.8bn by Lon­min’s Septem­ber year-end and leaves its BEE sta­tus in jeop­ardy. The com­pany re­fused to com­ment on the sta­tus of its re­la­tion­ship with Shan­duka, or on Shan­duka’s ex­pired loan other than to say that Lon­min was wait­ing for Shan­duka and Pem­bani to fi­nalise their merger – a move which will see Shan­duka’s ef­fec­tive 9% Lon­min stake trans­ferred to Phuthuma Nh­leko’s Pem­bani. Lon­min had, some weeks ago, in­di­cated it al­ready thought Pem­bani was in pos­ses­sion of the as­set, but it is not.

Shan­duka has in­di­cated it has the right to de­cide not to re­pay the loan and for­feit its in­vest­ment as well as its ini­tial pay­ment of R300m.

Lon­min’s fi­nan­cial re­sults, pub­lished on 9 Novem­ber, re­veal it has now im­paired $227m (R3.2bn) of the loan, which stood at $409m (over R5.8bn) at its Septem­ber year-end. This is in ad­di­tion to the $80m Lon­min im­pair­ment on this debt in 2014. It now ac­counts for the Shan­duka debt at $102m (R1.4bn).

Shan­duka has told fin­week it has cho­sen not to re­pay the loan. “Shan­duka Group chose to ex­er­cise its in­de­pen­dent busi­ness de­ci­sion to not re­pay the loan and face the con­se­quences of the loan con­di­tions. The loan con­di­tions 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,” stake­holder re­la­tions man­ager Mma­batho Maboya said. Later, how­ever, Shan­duka CEO Phuti Ma­hanyele, who re­signed in Fe­bru­ary but ap­pears to have stayed on, said: “We re­main com­mit­ted to our in­vest­ment in Incwala Re­sources, a BEE part­ner of Lon­min.”

Lon­min will not con­firm whether Shan­duka has in­formed it on whether it will or won’t re­pay the loan. Both par­ties’ state­ments to date raise the ques­tion of whether Shan­duka and Lon­min have agreed that Shan­duka will keep its stake and not pay for it – a prospect that will be a bit­ter pill for Lon­min’s share­hold­ers and fun­ders to swal­low. They have been asked on nu­mer­ous oc­ca­sions to cough up in rights is­sues and loan agree­ments. Lon­min re­ported a loss af­ter im­pair­ments of $2.26bn for the year to end Septem­ber and net debt of $185m. Its net as­sets are val­ued at just $1.6bn af­ter an im­pair­ment charge of $1.8bn. It will now come to share­hold­ers and fun­ders again; it will raise $407m in a rights is­sue, and has con­di­tional amended bank­ing fa­cil­i­ties of $370m.

Shan­duka’s ef­fec­tive 9% stake is held through its 50.03% in­ter­est in Incwala, which has in­ter­ests in a num­ber of Lon­min op­er­a­tions. This means it does not have to par­tic­i­pate in the rights is­sue. But it is not clear if Incwala’s ef­fec­tive share in the group will be di­luted in the rights is­sue. Lon­min is stuck be­tween not get­ting paid by Shan­duka and not be­ing able to fund an­other ex­pen­sive BEE deal.

Shan­duka has ar­gued that since its in­vest­ment in 2010 – which was funded via a R2.3bn loan from Lon­min and R300m of its own money – none of the pay­ments to Incwala, which in­clude ad­vanced div­i­dend pay­ments (R1.3bn) and loans (R510m), were to re­pay Shan­duka’s debt. Th­ese pay­ments were used to re­pay debt in Incwala prior to Shan­duka’s in­vest­ment, or to re­pay debt in Lon­min op­er­a­tions in which Shan­duka has an in­ter­est. If this is ac­cu­rate, Lon­min is still pay­ing for pre­vi­ous BEE deals and im­pair­ing the Shan­duka loan, while still try­ing to stay afloat. Apart from its cap­i­tal rais­ing, it is clos­ing shafts and get­ting rid of 6 000 work­ers.

In Novem­ber last year it also en­tered into other BEE deals. Its deal with the Bapo ba Mo­gale tra­di­tional com­mu­nity, on whose land Lon­min mines, gives the com­mu­nity 2.25% of Lon­min in ex­change for a roy­al­ty­for-eq­uity swap; the sale of the Bapo’s 7.5% stake in the Pan­dora Joint Ven­ture to a Lon­min sub­sidiary; a R450m fu­ture roy­alty pay­ment and a R149m lock-in pre­mium. Lon­min has also con­cluded a deal with the Bapo com­mu­nity to is­sue shares out­side of the rights of­fer at a lower price so that Bapo re­tains its stake.

Lon­min’s BEE co­nun­drum plays no small part in its fight for sur­vival. Its so­lu­tion, how­ever, could be un­palat­able for share­hold­ers but po­ten­tially – should Lon­min’s for­tunes im­prove – a wind­fall for Pem­bani which may, pos­si­bly, end up with an un­en­cum­bered stake in Lon­min de­spite Shan­duka’s upaid R5.8bn.

Lon­min is stuck be­tween

not get­ting paid by Shan­duka and not be­ing able to fund an­other ex­pen­sive BEE deal.

Lon­min’s Marikana mine

Phuti Ma­hanyele CEO of Shan­duka Group

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