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Lonmin unveils plans for $800m rights offer as it recovers from strike

30 Oct 2012
JOHANNESBURG ( – With platinum miner Lonmin back in production after the deadly six-week strike at Marikana, the group is now turning its focus to stabilising the company, chairperson Roger Phillimore said on Tuesday.

Announcing plans to raise $800-million in a rights issue, he stressed that Lonmin needed a solid financial foundation to right-size its overhead structure, drive productivity, deliver the ounces and rebuild relationships with its labour force.

The rights issue would reduce the group’s level of indebtedness and increase its financial strength. The company said it had entered into a standby equity underwriting letter pursuant to which the rights issue would be underwritten at a minimum price of $1 a share.

Lonmin also reached an agreement with its lenders on the terms of amendments, which saw the company restructure its $700-million and R1.98-billion facilities.

“With the standby underwriting and amended debt facilities signed we have taken two decisive steps on our way to delivering that [a solid financial foundation] and we are confident about our financial security,” Phillimore said in a statement.

London-based mining analysts Liberum Capital said the proposed rights issue was in line with expectations, given Lonmin’s current indebtedness and the working capital that the company would need in the coming months.

The group lost an estimated 110 000 oz of platinum owing to the labour unrest, but said all concentrators, barring one under planned upgrade, along with two smelters were now operational, paving the way for the first ounces to be produced on Wednesday.

The safe production ramp-up to normalised levels – a priority for Lonmin – also continued to strain the finances of the group. However, the company expected operations to be operating at previously achieved productivity run-rates during the third quarter of the 2013 financial year.

Lonmin said it intended to continue the implementation of its “renewal plan”, which was developed earlier this year as the platinum industry buckled under the volatile platinum-group metals (PGMs) basket prices.

The renewal plan aimed to reduce or mitigate the pressures of gross cost increases and improve the effectiveness of the company’s expenditure.

It was expected that the review and alignment of the company’s operating model and management structure would yield in excess of R200-million a year in savings. A new procurement initiative, dubbed “the total cost of ownership”, was expected to achieve savings of over R100-million in the second half of the 2013 financial year and each year thereafter.
Lonmin, in efforts to achieve its revised production forecast of 680 000 oz for the 2013 financial year, aimed to invest about $175-million.

A further $210-million would be spent in the 2014 financial year, as Lonmin targeted sales of more than 750 000 oz/y during 2014 and 2015. In excess of 800 000 oz/y was expected by the 2016 financial year.

Capital expenditures of about $400-million a year were expected in the 2015 and 2016 financial years on the back of developing deferred projects, Hossy, Saffy and K4, to support the increased production levels.

Forty-six people, including 40 Lonmin employees, were killed in August during the violence and subsequent clash with police.