Brad Mills, CEO, Lonmin
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IFC funds fillip for Lonmin projects
Allan Seccombe
Posted: Tue, 13 Mar 2007

[miningmx.com] -- PLATINUM producer Lonmin has agreed a financing deal with the World Bank’s International Finance Corporation that will provide $100m to allow its empowerment partners to participate in growth projects, and another $50m for community development.

Lonmin, the world’s third-largest platinum producer at a million ounces a year, has four multi-million dollar growth projects on its books to lift production to 1.4 million oz by 2012 and to two million oz beyond that.

It is very difficult for black economic empowerment partners in development projects to raise capital to follow their rights in such projects, given the minority stake they hold in the project and the length of time it takes before there is a capital return on such a venture, Lonmin CEO Brad Mills said.
ready capital for our BEE partners
Lonmin has its Pandora and Limpopo Phase Two projects, which are the most likely to come into production first. These will cost some $200m each and each is empowered by between 15% and 20%, he said.

Mills declined to give details on the projects, saying more information would be made available at the May presentation on the interim results.

The IFC’s 10-year $100m debt facility, which has a seven-year holiday period from the first draw down and an interest rate of 1.5% above LIBOR, will be used for the BEE partners’ participation in the projects, despite the IFC agreeing to the funds being made available for any of its expansion projects.

“It is ready capital for our BEE partners to allow them to participate in the expansion projects without having to go through a tortuous capital raising exercise,” Mills said.

“It doesn’t create extra burden on the vendor to come up with a commercial loan agreement,” he said, adding those terms were often not the most favourable for smaller companies, but were sometime the only available option.

Drawing down on the $100m loan will start once there’s a commitment to either one or both Pandora and Limpopo phase two projects, he said.

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The IFC will spend a further $50m to buy Lonmin shares over a two-year period, which at today’s prices, would give it a roughly 0.6% stake in the company.

Lonmin will issue new shares to the IFC at a five percent discount to the prevailing market price, which it will buy in tranches of not less than $10m at a time.

The entire $150m loan is the single largest IFC investment in sub-Saharan Africa.

Rashad Kaldani, an IFC director, said the private sector arm of the World Bank was prepared to increase the size of the loan if needed.

“The IFC wanted a partnership and they said they would play up and bigger if they had skin in the game, which is the origin of the equity agreement,” Mills said.

The communities around Lonmin’s projects will benefit from an immediate $15m injection in projects such as water reticulation, sewage systems and housing.

“This raises the bar for other mining companies and they have to see there is a need to divert some of their balance sheet to broader issue of community involvement in projects on the equity side, involvement or community development,” Mills said.

Kaldani said the IFC had spoken to all the platinum producers operating in South Africa.

“We are open to replicating the scheme with other companies,” he said.

Lonmin plans to build 5,000 houses over the next five years, with 600 built this year alone. Lonmin is also converting single-sex hostels into family units for its workers.