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.
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