PIC supports Lonmin move to Joburg bourse

In an attempt to rein in costs, the largest shareholder in one of the world's largest platinum producers, Lonmin, said it would support a decision to switch its primary listing from London to the JSE.

The Public Investment Corporation "would support a primary listing on the JSE", the company, which owns about 30% in the troubled miner, said in response to questions from Business Times.

Based on a "drastic" change of Lonmin's share registry after its last rights issue in December 2015, the corporation said it would support such a move should it be considered.

"The continued existence of Lonmin is of utmost importance and we expect all stakeholders to continue to support Lonmin with its turnaround strategies and cost-cutting initiatives," Deon Botha, PIC head of corporate affairs, said.

On average, maintaining a primary listing on the London Stock Exchange costs about R120-million annually, which includes various corporate costs. In comparison, a main-board listing on the JSE for a company with a market cap similar to Lonmin's at around R5-billion, would cost about R298,400 a year.

For a R50-billion-plus sized company such as Woolworths, it would cost R392,200. This excludes fees associated with corporate actions or third-party advisory fees such as legal fees, reporting accounting fees and corporate adviser fees.

Lonmin CEO, Ben Magara, said its London listing helped with its international shareholder base.

"The cost-benefit analysis today says it pays to have this office and justifies this case."

The mining company has a team of about 10 people based in its London offices, and they are focused solely on the logistics of the listing.

The company holds six scheduled board meetings a year, of which two are based in South Africa. In the past financial year, Lonmin has had 14 additional meetings.

The benefits of not of having a dual listing has been a key concern of investors in recent years, in light of the poor performance of Old Mutual and other companies that sought a London listing at the turn of the century.

AngloGold Ashanti, Africa's biggest gold miner, dropped its secondary listing in the UK after it failed to gain traction with investors.

Izak van Niekerk, analyst at Mergence Investment Managers, argued that Lonmin needed its London listing as it may lose some investors if it were to delist.

In the future, said Van Niekerk, "if they want to do another rights issue again, having a listing on two exchanges may help them get it done a bit easier than they would have if they were just listed in South Africa".

Since 2009, in the face of a dramatic plunge in platinum prices which are close to 60% off their record high, Lonmin has undertaken three rights issues. A fourth has been mooted as the miner continues to grapple with high costs and a flat metal price.

According to Bloomberg data, about 36% of Lonmin's shareholders are based in the UK. Combined with the PIC's shareholding, South African stockholders make up about 31%.

Earlier this week, Lonmin reported a loss of $214-million for its six-month period to March, compared with a $6-million loss in the corresponding period last year.

The miner incurred a $146-million (about R1.94-billion) impairment charge which had narrowed its margins, dragging the company's net worth down to $1.4-billion.

Auditors KPMG cautioned that a drop below $1.1-billion would reduce Lonmin's liquidity.

What Lonmin needed was a better rand price for platinum, Van Niekerk said, and if the metal price did not improve its net worth might drop below the $1.1-billion tangible net worth mark.

Lonmin's share price dropped nearly 13% this week, and at R17.62 the share is trading at around its record lows on the JSE.

An analyst, who in line with company policy did not want to be named, said delisting from London at this stage would not help much.

Lonmin might save some money in the short term, but assuming that its financial performance improved in the future, retaining the listing would be worthwhile.

Makwe Masilela, an analyst at BP Bernstein, agreed that a London listing still made sense.

If anything, said Masilela, the miner could consider delisting from the local bourse. "Most guys list overseas because of the access to cheap money and more sophisticated investors than here," he said.

Consideration of future listing options for Lonmin comes in a week when it announced that it was moving its South African head office from its swanky Melrose Arch offices in Johannesburg to its operational base at Marikana in North West province.

All of the company's executives and managers — 32 people — are moving to the mining operation, where 34 mineworkers were killed by police in protest action in 2012. The mine is the company's only operational asset.

"It's a step in the right direction around enhancing the management support in our operations," Magara said.

The company said it believed that having its headquarters physically close to the mine would go a long way towards resolving at least some of its operational problems.

"We have been very enthusiastic in doing what we need to do and picking up the accountability."

The move will save the troubled miner as much as R30-million in costs.

mtonganal@sundaytimes.co.za