Battling Lonmin taken to task
FAILURE TO INVEST IN SOCIAL AND LABOUR PLAN Forum argued in court platinum miner had financial muscle to make good on its original promises.
Lonmin’s dire financial status was laid bare in a court case last week, showing it had made a R49 billion loss over the previous four years. Last Friday, the Mining Forum of SA and its president, Blessings Ramoba, asked the North West High Court to suspend Lonmin’s mining licence for not fulfilling its five-year social and labour plan (SLP).
It also asked for the licences of Eastern Platinum and Western Platinum, both controlled by Lonmin, to be suspended. Judgment was reserved. A condition attached to issuing mining licences is fulfilling a SLP to uplift workers and surrounding communities.
The forum argued Lonmin had the financial resources to make good on its original SLP submitted in 2014, but didn’t, and should therefore have its mining licence suspended. It is also attempting to block Lonmin’s takeover by Sibanye-Stillwater, arguing this would erode Lonmin’s commitment to the community.
Lonmin conceded it hadn’t spent what was originally planned due to deteriorating economic and operating conditions. It nevertheless spent close to R680 million on upliftment programmes and nearly R12 billion on BEE suppliers over three years.
It presented an affidavit by Wits University professor Harvey Wainer, arguing that the forum misread its financial statements.
Lonmin has been a consumer of cash in each of the past five financial years and its existence “as a going concern is materially uncertain”, reads Wainer’s affidavit.
The forum intimated, based on the annual report’s executive pay figures, that business was booming. Wainer said it was not uncommon for executives to be remunerated for returning a company to profitability and retaining key executives.
Ramoba’s affidavit referred to Lonmin’s 2017 earnings before interest, tax, depreciation and amortisation (Ebitda) of R572 million. Though Lonmin reported a R15.4 billion operating loss last year, this “does not translate into cash going out of the company”, he said. The forum claimed noncash items like amortisation and depreciation, dependent on management’s judgment, accounted for the loss.
Wainer said this was incorrect. Examining the cash position had to be gleaned from the cash flow statement, not the Ebitda in the income statement.
Lonmin reported cash inflow of R485 million last year, substantially less than the R1.4 billion required to fund basic capex for mining. A proper reading of the accounts show Lonmin has been generating negative cash flows for several years due to a steadily deteriorating commercial climate.
Ramoba also intimated that Lonmin’s financial position was better than it made out, based on current assets exceeding current liabilities and total assets exceeding liabilities.