Lonmin implodes
Shares slide more than 20% on debt refinancing worries
LONMIN yesterday turned into a poster child for the turmoil buffeting local commodity producers as its shares plunged by more than 20 percent on concerns about its ability to refinance its debt.
Shares of the world’s thirdlargest platinum producer were the biggest drag on the JSE yesterday, wiping nearly R1 billion off the company’s market value and taking the stock to its lowest level in 22 years.
Labour strife
The implosion of the stock came just three days after the country observed the threeyear anniversary of the Marikana massacre in which 34 striking Lonmin workers were gunned down by police.
Lonmin has struggled to regain traction ever since. The company, along with other platinum producers, was hit by a damaging strike last year that lasted for about five months as the Association of Mineworkers and Construction Union demanded higher pay.
At its worst point during yesterday’s trading, Lonmin’s share price plunged by as much as 22 percent to R5.31, which was the stock’s lowest level since early 1993.
The company’s stock ended 19.56 percent weaker at R5.47, which valued the company at R3.2bn, which is less than half the value of Lonmin’s $560 million (R7.24bn) debt facility.
Lonmin is expected to go to the market to refinance this debt facility, which matures next June. The company, in tandem with its peers, has been battered by the slide in commodity prices amid worries of a slowdown in China. Platinum has slid to six-year lows.
Cost controls
To offset the price slide, Lonmin has made cost control a priority. It plans to close several shafts in a bid to cut annual output by some 100 000 platinum ounces in the next two years, putting 6 000 employees including contractors at risk.
Lerato Molebatsi, a Lonmin spokesperson, promised to provide comment to Business Report about the share price slide but by the time of going to print she had not responded.
The drop in Lonmin’s share price was mainly due to the company’s limited funding options, Imara SP Reid analyst Sibonginkosi Nyanga said.
“The market is asking how Lonmin will finance its debt facilities? People are talking about a rights issue,” Nyanga said. “At these levels, it means the price for the rights issue will be at a significant discount. It seems the market is factoring in that Lonmin has limited options of raising capital.”
Rene Hochreiter, an analyst at Noah Capital Markets, doubted the slide in Lonmin shares could make the company a possible takeover target.
“There a lot of boxes that need to be ticked and hurdles to be jumped,” Hochreiter said.
Lonmin is the worst stock on the JSE’s all share index this year and has fallen 77 percent.
It previously said it was reviewing the appropriate capital structure in the new pric- ing environment. It also said it was considering the full range of options to secure long-term capital and expected to update the market when it presented full-year results in November.
Global research firm UBS last month downgraded Lonmin to a sell on concern that cash flow from an eventual increase in platinum group metal prices will be needed to boost capital expenditure as the company tries to reverse several years of under spending.