SUNDAY TIMES - We are all locked into Lonmin's fuzzy future
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Sunday Times Opinion By Ron Derby, 2017-03-12 00:00:00.0

We are all locked into Lonmin's fuzzy future

Should the worst fate befall Lonmin, the platinum miner will once again stand before shareholders pleading for a bailout package, the fourth in a decade and second of the management team led by Ben Magara, about whom seldom a bad word is said in the mining fraternity.

The task he took on about five years ago, of turning around the troubled platinum miner, was colossal, made all the more difficult by a market that has remained in hibernation.

The only beneficiaries of another rights issue, if it depressingly comes to that, will be investment bankers - a former wolf tells me it's one of the easiest and most lucrative tasks to undertake.

For shareholders - in particular the Public Investment Corporation, which is the mining company's biggest shareholder with a stake of close to 30% - it would be yet another chapter in a sad tale.

Should it be management's only option, at least there's the PIC, which has to consider its moral obligations.

The long-term economic costs of not supporting Lonmin are simply too large to ignore.

Despite the extensive cost cutting that Lonmin has had to undertake over the past five years, the miner still employs more than 24000 people, according to Bloomberg data.

With each of those jobs supporting seven people, the company's future affects about 168000 South Africans - terrifying numbers in a country with one of the highest unemployment rates.

The PIC's dual mandate is to generate returns on behalf of state employees and contribute to the country's developmental goals. Which leaves the institution in a quandary.

The longer platinum remains in a bear market - and it's been a while - the less likely are any returns from its Lonmin investment. But failing to support management should the day come that it must undertake a rights issues would push the firm over the edge.

One person not looking forward to seeing a rights issue penned by an investment bank on his desk one of these Monday mornings is PIC boss Daniel Matjila.

It's preferable to support a rights issue when a company is seeking funds to invest in growth projects. A case in point is Curro Holdings, which last year came to the market to support its rapid - and maybe worrying - expansion.

Shareholders who believe the sales pitch participate only in the hope of greater dividends.

A rights issue for a company in trouble, such as Lonmin, is intended to plug holes in the hull of an unseaworthy vessel. Perhaps I am being a bit unfair here because the miner still has some great assets, but there's no arguing that the ship really needs to put into harbour for more than a coat of paint.

A fourth rights issue is no silver bullet for Lonmin. There must be other options. A takeover bid by Sibanye is one, but has its own fundamental problems if the PIC's other, I guess softer, mandate is taken into consideration. It certainly wouldn't aid transformation.

And I can only imagine that a Sibanye purchase would immediately come with restructuring efforts that will mean even further job cuts.

The toughest question to answer is whether it is possible to do any more to save Lonmin than Magara and his team have already done?

Lonmin's woes represent so much more than just another corporate tale, resonating, as they do, in the heart of SA Inc.

The final solution is one in which we are all - not only government employees - invested.

An ugly end portends so much more for the country.

derbyr@sundaytimes.co.za or follow Ron on twitter @ronderby