PLATINUM miner Lonmin has warned it could stop trading if shareholders reject a $770m refinancing plan, which includes a cash call through a rights issue.
Under pressure from rising costs and the plunging price of platinum, Lonmin wants to raise $400m through a share sale and $370m from banks, as well as slash 6,000 jobs as part of wider cost cutting measures.
Shares in the world’s third-largest platinum producer fell as much as 4.76% after it warned investors that “the group may have to cease trading and shareholders could lose the entire value of their investment in the shares” if the rights issue was not adequately subscribed.
Investors will vote on whether to proceed with the rights issue on 19 November. The sale – if approved – will be at a significant discount to the price of Lonmin’s shares prior to the day it enters into an underwriting deal.
South Africa’s Public Investment Corporation, which holds approximately 7% of the issued share capital of Lonmin, has indicated its intention to take up its entitlement in full in the proposed rights issue and, will sub underwrite a “material portion” of the sale in excess of its entitlement.
Ben Davis, a mining analyst at Liberum Capita, told Bloomberg it will be “tricky”.
“It certainly was a good win to get the PIC on board but it wasn’t explicit enough in how much it would underwrite apart from its own portion,” Davis said.
Lonmin’s efforts to refinance its balance sheet comes after the FTSE 250 miner has embarked on a series of measures to reduce costs and capital expenditure to preserve cash after suffering from the global commodity slump.
Prices for platinum have plummeted by 20% this year and reached a six-year low last month, while shares in Lonmin have fallen by more than 80%.
The restructuring programme started with the freezing of general recruitment and natural attrition to reduce workforce levels. Over 1,550 employees had left the group through voluntary separations and early retirement by 16 October, it said in a trading statement last month. In total, approximately 6,000 employees, including contractors, are affected by the cuts.
The business plan has been developed to reduce fixed cost expenses, remove high-cost platinum production ounces and reduce capital expenditure to the minimum required for the safe and efficient running of the group’s operations, while preserving its ability to increase production when prices improve.
Measures to reduce overhead and support services include the decommissioning of a concentrator and the revision of all incentive schemes to encourage production efficiencies and to ensure that bonus and incentives schemes are self-funding.
Annual bonuses to management level employees for the year ended 30 September 2015 have been waived. In addition, no salary increases have been granted to management for the year ending 30 September 2016. Marketing and promotional expenses, as well as discretionary spending on training, are being reduced.
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Lonmin is also assessing its capital projects with the aim of limiting capital expenditure to levels required to satisfy regulatory and safety standards and essential sustaining capital expenditure. At the same time capital expenditure is being invested only in the most valuable development projects available to the group, it said. Lonmin expects to limit its capital expenditure to approximately $132m, $110m and $188m for the years ending 30 September 2016, 2017 and 2018, respectively.
Hurbey Geldenhuys, a mining analyst at Vunani Securities, told Bloomberg that Lonmin’s competitors such as Anglo American Platinum, the largest producer, and Impala Platinum Holdings have stronger balance sheets and offer investors better prospects for growth.
“The proposed business plan, which includes the plan to shut high-cost shafts, is unlikely to result in the group surviving the current low platinum-group-metal price environment,” Geldenhuys said in an e-mailed note to clients, cited by Bloomberg.