Lonmin needs to show PIC it means business

Matjila not averse to ownership changes, but first task is to save struggling miner

WHAT’S needed now is to support Lonmin’s rights issue to save the company, Public Investment Corporation boss Daniel Matjila said this week. But he indicated that management changes and majority local ownership could be up for discussion soon.

The PIC, which has a 7.65% stake in the company, has agreed to support the rights issue and has committed to additional support if fundraising efforts fall short of the required amount for its latest turnaround plan — $407-million (about R5.9-billion).

Matjila said the PIC was only supporting the latest share sale because Lonmin assured it the money raised this time would be enough to turn things around for the world’s third-largest platinum miner. But he said it would be a ‘‘very big problem” if the company came back looking for more money in a year or two.

“They must show us now that they can make a difference. If they have to come back to us in a year, that will mean that they were dishonest and their integrity will be brought into question,” said a stern Matjila.

The rights issue would see the PIC holding a considerable, but not controlling, stake in the struggling platinum mining company. The London-based company has been withIn

If they have to come back to us in a year, that will mean . . . their integrity will be brought into question

out a majority shareholder since Glencore sold its 27% stake in June this year.

The fact that the company will issue 27 billion shares at a 94% discount during the rights offer will make it hard for any one party to take a controlling stake, and would essentially leave all decision-making in the hands of the company’s much-criticised management team and board.

If shareholders this week vote in favour of the rights issue, Lonmin will have had three rights issues in six years in which it will have raised close to $2-billion, with not much to show for it. Half of the company’s executive members have been around for at least two of the cash calls, resulting in analysts and industry experts questioning their strategy, or lack thereof.

Lonmin’s first rights issue was in 2009, when it managed to raise $450-million. Three years later, the company raised $817-million, but the major shareholder at the time, the Mick Davis-led Xstrata, called for management changes.

Glencore, led by Ivan Glasenberg, subsequently acquired Xstrata in April 2013 and became the largest shareholder until February this year.

a briefing at the company’s operational headquarters in Johannesburg on Friday, Lonmin CEO Ben Magara admitted that the miner had made mistakes in the past, including $2-billion spent on property and an unsuccessful mechanisation drive.

Magara said Lonmin was having to spend about R500-million to reverse the mechanisation process. ‘‘Platinum is hard rock, it’s narrow and it’s deep and the temperature is high, so mechanisation with diesel with those kinds of conditions is not always going to work.”

Magara, who only joined the company two years ago and who is leading his first rights issue, said the problem with previous capital-raising exercises was that Lonmin had planned for a higher platinum price within the next 18 months.

‘‘This plan doesn’t,” he said, adding that he did not expect an imminent recovery in the price of the metal. Platinum has plummeted from an all-time high of $2 069/oz on August 30 2006, to $868.5/oz on Friday — a drop of 58%. The metal has been affected by sluggish economic growth and an oversupply situation.

Matjila said: “Look, we have to get past this rights issue first, after that we can look at possible management or board changes. My mission now is to help save the company.”

The rights issue will essentially turn Lonmin, which has an estimated $24-billion asset base, into a penny stock. This means black investors could pick up a controlling stake for as little as $45-million.

Several black entrepreneurs have been lobbying the PIC to assist them to get a majority shareholding in the company.

Matjila said the PIC would “most definitively” consider helping to finance a black majority shareholding in Lonmin, but it was a matter of structuring the deal correctly, which meant, once again, that it needed to await the outcome of the current $407million rights issue.

But analysts warned that the rights issue would buy Lonmin only limited time, and that the company could end up in the same hot water if the platinum price did not turn upwards within the next two to three years.

Magara said he was open to the future reintroduction of an anchor shareholder in the company. The miner’s top 10 shareholders, which include Kagiso Asset Management and Investec, make up about 60% of its share registry, according to Bloomberg data. From a 48% South African shareholder base at the start of the year, it has now fallen to about 25%.

Since the announcement of the details of the share issue on Monday, Lonmin’s share price fell more than 38% during the week, closing at R2.03 on Friday. The share went from a high of R4.25 on Monday to a record low of R1.80 on Tuesday.

See Pages 2 and 8 Comment on this: write to letters@businesstimes.co.za or SMS us at 33971 www.sundaytimes.co.za