Lonmin’s shares show alarming decline

LONMIN’s options to refinance its debt next year are getting tougher as the plunge in shares of the world’s third-biggest platinum producer deepens.

The stock has dropped 68 percent since July 1, leaving it a market value of $331 million (R4.24 billion) as it has debt facilities of $563m to renegotiate next year. Lonmin will struggle to obtain similar terms from banks or sell shares, which would wipe out much value for existing shareholders, according to Momentum Asset Management and Liberum Capital.

“There comes a point in time when the share price is just so low that the dilution from the rights issue destroys the company and the valuation,” Simon Hudson-Peacock, who helps to manage more than $25bn at Momentum, said last week.

Momentum sold its stake in Lonmin earlier this year. “This kind of share price will lead them to look at other options.”

Lonmin might consider concluding infrastructure-sharing ventures with fellow producers or a sale of assets as a way to raise finance, Hudson-Peacock said. It was reviewing its capital structure while it operated at a loss amid a plunge in platinum prices to a six-year low.

Job Cuts

It is planning to cut as many as 6 000 jobs, or 16 percent of its workforce, as it closes shafts that contribute 100 000 ounces of platinum to its existing annual production of 730 000 ounces. Lonmin yesterday declined 6.44 percent to close at R7.12 on the JSE. It is this year’s worst performer on the broadest stock gauge in Johannesburg, where it has a secondary listing, declining 77 percent. Its price-to-book value is 0.1, the lowest among its peers, according to data. Sue Vey, a spokeswoman for the company, declined to comment.

Should Lonmin succeed in renegotiating new debt terms, these would probably be more onerous and restrictive than the conditions on its current facilities, Ben Davis, an analyst at Liberum Capital in London, said last week. Liberum has had a hold rating on Lonmin since October 20.

The platinum producer should find alternatives to a share sale as a way of refinancing debt amid a rout in metal prices, the Public Investment Corporation (PIC), which manages state pensions, said last month. The PIC is Lonmin’s second-largest shareholder with 9.97 percent.

“I hope they’ve got a plan B, it is difficult at this time to know what that can be,” Edward Sterck, an analyst at BMO Capital Markets, said at the beginning of the month.