[miningmx.com] – THE underwriting of Lonmin’s $369m rights offer by South Africa’s Public Investment Corporation (PIC) was ‘incongruent’ as that was betting pension money on “a risky investment”, said Neal Froneman, CEO of Sibanye Gold.
Lonmin announced on November 9 as part of the pricing of a rights offer that the PIC would underwrite a significant portion of the proposed rights offer beyond its 7% stake in the platinum business.
“The PIC holds 7% and it has committed its own rights and committed to material portion of their investment,” said Magara in a conference call with media. He declined to say how much more of the rights offer the PIC would support.
The UK platinum producer agreed to a heavily discounted rights offer of 46 for 1 in which it would raise $369m after fees.
The outcome is that Lonmin is issuing shares at a deep discount of some 93.85% to its November 6 closing price – equal to 21.4 cents/share – a development Investec Securities described as “spectacular” and that forced the hands of shareholders.
Froneman said the PIC was “the wrong vehicle” for the under-writing. He suggested that it would be more appropriate for the Industrial Development Corporation (IDC) to support Lonmin’s distress capital raiser.
The PIC, which is 100% owned by the South African government, invests over R1.8 trillion of funds on behalf of public sector entities, according to its website. The IDC, which the government also owns, is a development fund institution.
“The question is, should you be doing it with people’s pension money? The answer is no,” said Froneman in an interview with Miningmx. “Should the IDC be the vehicle, probably?,” he said.
“But it seems it’s just incongruent that an institution that manages pension money would invest in a company that is highly risky. I understand the national interest issue but surely they must also have fiduciary duties,” said Froneman.
Sibanye has bid at least R4.5bn for control of Anglo American Platinum’s Rustenburg mines and a further R4bn for control of Aquarius Platinum as Sibanye seeks to boost its dividend strategy to include commodities other than gold.
However, Froneman distanced his company from bidding for Lonmin because of the debt in the company and negative cash flows that would have to be funded. A premium on the share price and fresh capex would also have to be paid, he said.
“It’s not a smart acquisition. So we don’t think we could buy Lonmin in a vanilla way even as cheap as it is,” he said.
Shares in Lonmin have fallen 45% since the rights offer was announced on November 9. The firm is now worth about R1.2bn against the R5.7bn it is trying to raise from shareholders.
“Let me just say one other thing, everyone assumes that the processing facilities [of Lonmin] are key and worth a hell of a lot,” said Froneman.
“We are very happy to allow Anglo Platinum to process our material. There are technical challenges with large amounts of UG2. it’s not our problem,” he said.
