Lonmin refinances

Lonmin, the platinum producer that was almost brought to its knees by strikes at its South African operations in the summer, has announced a chunky rights issue to improve its chances of passing its banking covenant tests.

The group plans to raise in the region of $800m through the underwritten rights issue. Final details of the rights issue have yet to be determined but the new shares will be issued at a minimum price of $1 a share.

The group said it expects to pass its banking covenant tests when they are applied in November but, as it ramps up production and replenishes its stock pipeline, debt levels will rises significantly in the coming months and there is a chance that the group would fail its end-March covenant test next year were it not for the injection of funds from the rights issue.

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The group has reached agreement with both its dollar and South African rand (ZAR) lenders on changes to the the terms of its existing debt facilities. The amended facilities are conditional on Lonmin raising at least $700m (net) by the end of 2012, and the company using the funds to permanently reduce is US dollar denominated facilities from $700m to $400m.

In addition, Lonmin has agreed that the existing net debt / EBITDA (earnings before interest, tax, depreciation and amortisation) and EBITDA / net interest covenants in both its existing $700m and ZAR1.98bn facilities will be removed from the amended facilities and that they will be substituted with the following covenants: consolidated tangible net worth will not be less than $2,250m; net debt will not exceed 25% of consolidated tangible net worth; capital expenditure will not exceed certain rand-denominated thresholds, set at around 10% above budgeted levels, for twelve-month periods to September 30th and March 31st each year and the six-month period to March 31st 2013.

The world's third largest primary platinum producer said the ramp up to full production is going better than expected after the illegal strike at its Marikana mine in South Africa ended last month, and the first output of platinum since employees returned to work is expected on October 31st.

In all, the group reckons it lost 110,000 ounces of mined platinum production as a result of the strike.

"The tragic events at Marikana in August are indelibly etched in Lonmin's corporate memory and will shape thinking for years to come both at Lonmin and more broadly in South Africa. Nevertheless the business is now back in production and must look to the future. There is much to do and in order to achieve this Lonmin needs solid financial foundations including the appropriate balance sheet structure and debt facilities. With the standby underwriting and amended debt facilities signed we have taken two decisive steps on our way to delivering that and we are confident about our financial security," said Roger Pillimore, Chairman of Lonmin.

Largely because of the disruption caused at Marikana, Lonmin produced only 1.65m tonnes of ore in the fiscal fourth quarter, half the level it produced in the corresponding quarter of 2011.

Platinum metal in concentrate from the Marikana operations for the quarter was 102,822 saleable ounces, a quarter-on-quarter decrease of 89,055 ounces and 89,048 ounces lower than the fourth quarter of the 2011 financial year.

Sales for the fourth quarter of the 2012 financial year were 233,054 platinum ounces, and 476,104 platinum group metals (PGM) ounces with platinum sales down 3.7% year-on-year. Sales in the fourth quarter benefited from the toll refining of 18,021 ounces of platinum, and more significantly, running down stocks in the pipeline.

The US dollar basket price (including base metal revenue) at $1,103 was 20.6% lower than the fourth quarter of the 2011 financial year, but 1.6% higher than the third quarter of the 2012 financial year. The corresponding rand basket price at ZAR 9,031 was 9.2% lower than the prior year period, although equivalent to the third quarter of the 2012 financial year.

JH