Lonmin's cap in hand
Lonmin is to raise R6.9-billion from shareholders to cut debt and finance a recovery after weeks of strikes in which dozens of people were killed.
The mining company said yesterday that it would use the underwritten rights issue to restructure its balance sheet.
Though most of its workers have returned to work, Lonmin - which even before the walkouts and illegal strikes had one of the most stretched balance sheets in the platinum sector - said it had lost 110000oz of production and had scaled back long-term plans to boost output and sales.
Lonmin said efforts to ramp up activity again were progressing better than expected but the return to business-as-usual would take months and, along with the rebuilding of stocks, would swell its debt in the short term.
It would have breached current loan covenants at the end of March - even if higher-than-expected sales of stockpiled platinum help it meet a test in November.
So the miner has turned to investors for a cash boost.
"We believe $800-million [about R6.9-billion] is the right [amount] to support the plan we have in place," acting CEO Simon Scott said.
"It will put the company in a position in which it can reduce its debt and manage the business on a stable platform."
In August, analysts speculated that Lonmin could raise as much as R13-billion - virtually its current market value - after it warned it might turn to investors for cash.
Yesterday, Lonmin said it would rein in its expansion plans and raise less than half that in gross terms - meaning the number includes fees paid to underwriting banks, which are expected to include its advisers, JP Morgan and Citigroup. It did not provide full details on the timing or the extent of a discount.
It did not comment on a commitment from its largest single shareholder, miner Xstrata, which owns a 25% stake after a failed takeover bid. Xstrata, which is in the throes of a takeover by its biggest shareholder, Glencore, said it would consider its position after assessing Lonmin's revised strategy, business plan and "management capability".
Xstrata is not expected to remain a shareholder in the long term but analysts say it might pay up to avoid further write-downs of its stake.
"I want to see what Xstrata does. It would be very interesting to see if it follows its rights - it is more important in this whole process than anybody else," said Sasha Naryshkine, fund manager at Vestact, Johannesburg.
"Lonmin has to be a meaner, leaner machine afterwards."
Shares in the group were trading up 5.7% in the early afternoon in London on the news; Johannesburg-listed shares were up 5%.
Lonmin said new debt conditions agreed to with its lenders depended on the company raising at least R6-billion in equity capital by the end of the year and using it to reduce its debt to about R3.5-billion from R6-billion.
The conditions, currently linked to a debt-to-profit ratio, will be replaced with ones tied to the tangible value of its assets and limits on capital expenditure.