Lonmin, a lesson in nationalisation

28 May 2017 - 02:00 By Ron Derby
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For emotive reasons above all else, the case of Lonmin is something we should all pay very close attention to. I've often said this, but on better reflection, maybe what I should be saying is that as a nation, we are fully invested in this story.

For those who'd like the country to adopt nationalisation as a policy and who will pitch their ideas at the ANC's policy conference at the end of next month, I propose they use Lonmin as a case study.

It's a useful example in that it isn't a distant and rather depressing story of the violent implosion of the Venezuelan experiment, or the decades-old Zambian bête noire, which saw its once-thriving mining industry nationalised and then promptly collapse. It's our very own home-grown economic tragedy.

With a 30% stake in the mining company, the Public Investment Corporation is its biggest shareholder, on behalf of government pensioners. You see where I'm going with this.

While not having full ownership, the state controls the fate of one of the world's biggest platinum mining houses with a direct equity ownership in a company that is burning through cash at a prodigious rate as it battles restive communities, a disaffected workforce, safety interruptions and low metal prices.

The PIC's stake will in all likelihood rise even further should Lonmin embark on its fourth rights issue in a decade to once again save the business.

While many shareholders who took a punt on the last issue will throw in the towel, the PIC will almost surely - as it's done before - dig deep and follow its rights, and more.

Now, rights issues aren't necessarily bad corporate actions, especially when done to fund future growth.

And as a once-off rescue play, with a change of management and a solid recovery plan, they are a necessary evil.

Nedbank's capital raising after its many misadventures in the late 1990s was a good example.

In the case of Lonmin, teachers, nurses and policemen should ask whether the manager of their pensions should be throwing more good money after bad.

The chances are high that they'll have no other choice but to be supportive of Lonmin, employer of over 20000 souls.

After all, the PIC has a dual mandate: to generate returns on behalf of clients; and to contribute to the development goals of the country. Would it aid the second objective to let Lonmin go bust?

Given its recent history, where the death of 34 mineworkers because of a pay dispute has largely been blamed on government and business, allowing Lonmin to fall would be politically disastrous.

In that sense, it's simply too big too fail.

Perhaps there are some parallels with the threat the US and UK governments faced with the real prospect of a collapse of some of their biggest banks almost a decade ago.

They chose to nationalise many of those lenders, in the hope of "re-privatising" in better times.

South Africa has done the same with Lonmin, except there is no prospect of getting out, never mind making a profit.

And for every action, there's a reaction.

Spend on growth-enhancing infrastructure will lose out on investment.

Now, if the state owned and ran the operations of all the country's mining - in a Professor Chris Malikane- inspired utopia - can you imagine the state we'd be in today?

The portfolio of current state-owned enterprises already has us teetering on the brink.

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

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