Lonmin in $457m rights issue

Allan Seccombe | Mon, 11 May 2009 09:22
[miningmx.com] -- LONMIN, the world’s third-largest platinum producer, is raising $457m in a rights issue and maintains its full-year sales target of 700,000 oz despite wrapping up a restructuring plan entailing the departure of 7,000 workers.

Lonmin, which refinanced $575m of debt, recorded sales of 311,853 oz of platinum in the six months to end-March 2009, which was 45% of the full-year target. It posted an operating loss of $142m against a profit of $368m the year before.

Lonmin announced an underwritten two-for-nine rights issue of 35 million shares at 900 pence or R114.04 each to raise the $457m.

"In these weak credit markets and volatile times, we felt the right thing to do was to make the capital structure more robust and able to withstand any possible shocks the future might bring," said CEO Ian Farmer.

"To optimise shareholder value we have growth options inherent in the businesss that we have not yet taken the decision to activate. By putting the balance sheet in better shape it gives us the luxury when we deem the time to be right," he told Miningmx.

Shareholders Xstrata and M&G have both undertaken to follow their rights and buy nearly 36% of the news shares issued at around a 40% discount. Citi and J.P. Morgan Securities have underwritten the remaining shares.

The funds will be used to reduce Lonmin’s debt and consequent interest charges as well as possibly boost its cash holdings, which at the end of the financial period stood at $82m.

The refinancing comes at a cost of $14m. “With the commencement of the New Facilities the second half interest payable and fees will increase substantially and an effective funding rate of circa 6% is anticipated,” said Farmer.

In the second half of the year, Lonmin will continue its restructuring drive that has resulted in its Limpopo Baobab mine being mothballed and opencast operations at Marikana halted.

Lonmin is closing a decline shaft at Marikana as well as stopping work at five uneconomic half levels at the mine.

"We've taken a few self-help steps to improve and stabilise the business," Farmer said. "I'm feeling positive about the business at this point in time."

It is bringing its Saffy and Hossy shafts into full production. It has a hybrid of mechanised and conventional mining at the former and full mechanisation at the latter.

“We are gradually stabilising and improving the key elements of the business including development, grade and output,” said Farmer.

“However, improving the performance of our Mining business will take time to accomplish and the full benefits from our improvement programmes are not expected to be fully realised until after 2010.”

Looking ahead of the next six months, he said: “It is anticipated that any impact of these factors on production and sales will be compensated for by the normalising of metal in process inventory from the Process Division, with an expected weighting towards the fourth quarter of the financial year.”

Rand-based operations costs are forecast to be lower year-on-year for the full period.

“In positioning the business to be able to react positively to a market recovery, when it comes, it is crucial that we maintain a range of growth options from which to develop the business in the future,” Farmer said.

Growth will come from the Marikana mine in the short-term, with the Saffy and Hossy shafts key to that strategy. The K4 shaft will be producing reef tonnes in 2011.

The long-term growth projects at Akanani and Limpopo remain on care-and-maintenance and Lonmin will advise shareholders later on its plans for those assets.

Farmer declined to give a time line of when these projects could come on line, but said the rand exchange rate to the dollar as well as the basket price for platinum group metals would be the determinant. "The general consensus is that the long-term platinum price needs to be north of $1,300/oz to activate new projects," he said.