Lonmin at risk as investors hold key in rights issue vote
THE free fall in Lonmin’s shares continued unabated yesterday as shareholders clambered out of the stock, sending it 33% lower just a day after the world’s thirdlargest platinum miner unveiled a hugely discounted rights issue proposal.
Lonmin, which has a heavy debt burden of about $500m falling due in the next 12 months, has to secure shareholder approval for the fully underwritten issuance of nearly 27-billion shares at a 94% discount to restructure that debt.
Lonmin shares have fallen 60% in the past week.
Analysts have said shareholders not following their rights would be “diluted into obscurity” and that this unprecedented discount was designed to force investors into following their rights, ensuring Lonmin raised $407m before costs.
“The deep discount reflects the difficulty in getting this rights issue away although it is fully underwritten,” Carole Ferguson, a senior research analyst at SP Angel in London, said.
“Unless there is a rally in platinum prices, I don’t see how the long-term economics work out for this business where operational costs are being met, but little internal free cash flow is being generated,” she said.
If shareholders do not approve the rights issue, derailing the debt amendments, Lonmin would speak to its lenders about refinancing existing facilities or dispose of some or all of its assets or seek a merger, with no certainty these options could be concluded in time.
“The need for shareholder-approval of the planned rights issue, therefore, represents a material uncertainty that may cast significant doubt about the group’s and company’s ability to continue as a going concern such that they may be unable to realise their assets and discharge their liabilities in the normal course of business,” it said.
CEO Ben Magara rejected analysts’ views that Lonmin would again have to raise capital in three years’ time.
“No. Definitely not. In the current low-price environment, the business plan we have come up with will ensure that Lonmin, at worst, is cash flow-neutral and at best cash flow-positive.”
LONMIN’s share performance speaks more eloquently than the unrelentingly upbeat tone struck by the platinum miner’s executives during a results presentation on Monday.
In exactly one week, Lonmin’s shares have fallen 61% to a record low — R2.14 by mid-afternoon trade on the JSE yesterday. This followed news on Monday from the world’s third-largest platinum producer that it wanted shareholders to approve the issue of nearly 27- billion shares at a 94% discount to Friday’s closing price of R5.39.
When a veteran with 25 years of resources experience at a top investment firm says he has never seen a discount as deep as that and warns shareholders they face being diluted out of existence if they don’t follow their rights, it’s a clear sign something unusual is in the making. A lot rides on Lonmin persuading its shareholders to back resolutions on November 19 to give effect to the fully underwritten rights issue.
A consortium of 10 banks has made it the condition for amending debt falling due next year that Lonmin cannot afford to repay as things stand and extending it a smaller debt facility expiring in 2020.
Lonmin went as far as warning shareholders to back the resolutions or face losing their entire investment. Judging from the enormous volumes of shares trading hands in the past week as lots of shareholders are voting with their feet, to all those sales there is a counter party buying the promise Lonmin executives are making about its plans for a turnaround.
The vote promises to be a critical moment for the embattled firm.
WE’RE likely to see further moves into the casualdining space by Famous Brands. The group’s buyout of Greek chain Mythos announced this week gives it some clout in a category in which it is underrepresented. It is understandable why the group would want to move into that space as the consumers in that target market are generally well-heeled. Already, the group’s research through premium brands such as Vovo Telo and Tashas has shown that customers with robust disposable income remain enthusiastic spenders, despite weak economic conditions.
Just look at Woolies — its upperincome spenders have held it in good stead, while its rivals trudge along. Famous Brands is ungeared and has about R126m of cash on hand, so it has plenty of firepower to fund its growth plans. It hasn’t acquired any new chains for some time since its buying spree a couple of years ago. Could the Mythos acquisition be the start of another big expansion by Famous Brands?
In the casual-dining space, there are three more targets on the table: Doppio Zero, Life Grand Café and JB’s Corner. Whether they’re for sale or not is another story.