[miningmx.com] – SHANDUKA will not repay the £200m (R4.2bn) loan to buy its effective 9% stake in Lonmin and will forfeit its stake, leaving the platinum miner without sufficient black economic empowerment (BEE) shareholders and a financial hole.
Mmabatho Maboya, Shanduka’s stakeholder relations manager, said Shanduka “chose to exercise its independent business decision to not repay the loan and face the consequences of the loan conditions”.
The loan condition[s] state that Lonmin has the right to take over the investment if the loan is breached, and Shanduka Group will forfeit both the investment stake and its initial R300m investment into Incwala Resources [Lonmin’s BEE partner].
On 2 November, Lonmin warned that it will impair $1.85bn to $2.05bn of assets for the year to September, but made no mention of the Shanduka/Incwala issue.
It has only recorded an $80m impairment on the loan so far. The struggling platinum miner also plans to raise $400m from shareholders, the third such exercise in six years, and restructure debt in an attempt to shore up its balance sheet.
Finweek reported in its 29 October issue that Lonmin’s deal with Shanduka, which was started by deputy president Cyril Ramaphosa in 2001, was in jeopardy as it had failed to meet the five-year deadline to repay any of the £200m loan, which was R2.3bn at the time but is now over R5.5bn due to the rand’s devaluation and including interest.
Since publication, Shanduka has indicated it will not repay the loan, which arises from its 2010 purchase of a 50.03% stake in Incwala.
Shanduka disputed that the investment now sits in Pembani, saying it technically remains with Shanduka as its merger with Pembani has not been finalised despite it having received all the necessary regulatory approval.
Lonmin’s financial results, due out on 9 November, will show an operating loss of $207m before the impairment charge, which is “primarily driven by lower PGM [platinum group metal] prices and the business plan, which has an impact on future discounted cash flows over the life of mine business plan across the group’s operations”.
The business plan refers to Lonmin’s strategy to adapt its operations to the low-price environment for PGMs. It includes measures such as a reduction in capital expenditure, placing its Newman and Hossy shafts in care and maintenance, cutting 6,000 jobs, raising new equity and restructuring its debt.
Maboya would not say why Shanduka was not repaying the loan. “Shanduka Group, like any other company, has the right to exercise its independent business decisions without explaining them to any other party,” she said.
Finweek reported in the October issue that Shanduka had not repaid despite getting the original loan, an additional R175m loan, and its share of various dividends, advanced dividends and loans by Lonmin since its 2010 investment (see below).
But Shanduka has disputed this, saying payments made by Lonmin to Incwala were “solely meant” for the repayment of loans Incwala already had when Shanduka invested in the company in 2010.
Lonmin’s annual reports refer to dividends, advanced dividends and loans to Incwala, but Maboya said loans to Incwala “were to service debt and meet certain covenants arising from loans that were in place prior to Shanduka’s investment in Incwala in 2010.
“These loans were paid to prevent Incwala from defaulting on its loan obligations to its lenders, which would have jeopardised the BEE structure and endangered Lonmin’s mining licence and ongoing operations”.
She said that Shanduka did not receive any share of dividends declared.
Maboya said that Finweek suggested Shanduka was unable to meet its obligation to Lonmin, but this was not the case.
David Ngobeni, Shanduka’s chief financial and investment officer, said there were pre-existing loans to Incwala as well as operational debt, largely in Lonmin’s Akanani project, in which Incwala had a 25% interest, and that is what any subsequent loans were for.
He added that Incwala paid no dividends to its shareholders since mid-2010.
According to Ngobeni, Shanduka wrote off its investment in Lonmin in 2012, but did not walk away as it tried to keep the BEE structure in place.
GAME OF LOANS
Shanduka’s original loan was £200m (just over $300m or R2.3bn at the time), but at the September 2014 year-end, Shanduka owed Lonmin $417m (R4.58bn at the exchange rate at the time). This would be well over R5.5bn now due to the rand’s devaluation.
This debt arises from a deal in mid-2010 where Shanduka acquired 50.03% of Incwala Resources, which owns 18% of Western Platinum, 18% of Eastern Platinum and 26% of Akanani, giving Shanduka an effective 9% stake in Lonmin.
Shanduka’s investment was facilitated by the R2.3bn loan raised by Lonmin − and a R300m equity injection by Shanduka. This was followed by a further R175m loan from Lonmin.
Lonmin spokesperson Sue Vey confirmed for the 29 October issue that advance dividends to Incwala have been R1.129bn to date, including R228m in the 2015 financial year.
She also confirmed that no other shareholders have been given advanced dividends. The advanced dividends were paid in years in which Lonmin did not declare dividends to ordinary shareholders.
The loans to Shanduka to date include the £200m (R2.3bn) original loan in 2010 and a R175.5m preference share subscription by Lonmin in Lexshell 806 in 2011.
Loans to Incwala of R510m include R80m in 2011, R110m in September 2013, R160m in March 2014 and R160m to service its funding requirements in 2013. Vey would not comment further this week.
This article was first published on Finweek’s website www.fin24.com/finweek
