Lonmin results overshadowed by mining deaths and Xstrata bid

published 9 November 2012

Platinum miner Lonmin's poor full-year results have been overshadowed by the tragic events of Marikana and its revelation that it rejected a bid by major shareholder Xstrata back in September.

Lonmin's operations, situated in the Bushveld Complex in South Africa, have been affected by the strikes and the killing of 34 miners on August 16th at Marikana.

Platinum sales, forecast to be around 660,000 ounces for the 2013 financial year, have been "significantly impacted" by the events at Marikana, which have resulted in lower capital spend, the suspension of mining at K4 and the time it takes to ramp up the operation back to previous levels of productivity.

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Total revenue declined by $378m to $1,614m for the year ended September 30th, while it reported a pre-tax loss of $698m.

Alongside these poor full-year results Lonmin has also revealed that Xstrata proposed a deal in September which would have seen its own platinum business merged with that of Lonmin (Xstrata owns 24.5% of Lonmin).

The move would have left Xstrata with 70% of Lonmin and would have seen Lonmin's top executive replaced by Xstrata staff. However, the approach was rebuffed.

The concern now remains whether Xstrata will back Lonmin's $800m rights issue, which is designed to help fund its operational turnaround.

The proceeds from the rights issue will be used to permanently reduce the company's available US dollar-denominated borrowing facilities from $700m to $400m and partially pay down outstanding amounts on its remaining facilities.

Post the repayment, a US dollar revolving facility of $400m and other Facilities of approximately $225m will remain available to the company. This lower level of borrowing will provide the flexibility needed to fund the company's normal working capital.

The UK issue price of 140p per new share represents a discount of 44.4% to the theoretical ex-rights (TERP) and a discount of 69.1% to the closing price of 452.8p per share on Thursday November 8th.

MarikanaOn the subject of Marikana Roger Phillimore, Chairman, said: "The publication of today's results closes a painful chapter in Lonmin's history. There are many lessons to be learnt and these will inform our actions in the future. However we are now looking ahead with renewed confidence.

"We have secured our financial position and we have a clear strategic plan that management and workers alike need to deliver on for the sake of all our stakeholders."

However, given the deep-rooted socio-economic problems highlighted by the strikes, it appears debatable as to whether the next chapter mark a radical departure.

Analyst commentPanmure Analyst Alison Turner commented: "Lonmin's final results today are likely to be entirely overshadowed by the release of details in relation to the rights issue.

"The company is undertaking a 9 for 5 rights issue at 140p to raise US$817m, a heavy discount (44%) to TERP, required in part because the company has not managed to get unconditional approval from Xstrata for the rights issue.

"That is not, however because Xstrata does not support the Lonmin business; rather, Xstrata offered an alternative proposal to combine the Lonmin business with Xstrata alloys with Xstrata then owning over 70% of the combined business."