Green light for Lonmin $407m rights offer

[miningmx.com] – LONMIN shareholders approved the UK firm’s $407m rights issue following an annual general meeting (AGM) in London.

Of the votes cast – about 54% of the total share capital – just under 88% voted in favour of five resolutions which included issuing shares for cash and the placement of the Bapo ba Mogale Traditional Community’ shares. About 12% of those who voted at the AGM were against the proposals which also included a share consolidation.

“Lonmin is now able to carry out its detailed and carefully structured Business Plan. I would like to thank our shareholders for their overwhelming support,” said Brian Beamish, chairman of Lonmin in a statement.

The outcome is that Lonmin will issue shares at 21.4 cents/share which was a 94% discount to its share price at the time the terms of the rights issue were made public on November 9. The offer was described as “spectacular” by Investec Securities.

“A spectacular dilution event that has been brewing for some time,” the bank said in a note at the time.”Management is effectively forcing shareholders to follow their rights or be diluted into obscurity,” it added.

The rights offer also paves the way for the reschedulding of some $370m in debt to about 2020 compared to 2016.

It also effectively gives the approval to Lonmin’s business plan which it said would see it generate cash even at the current price of platinum. Platinum traded down to $854/oz in European trade from $860/oz in Asia earlier today.

“We had no choice but to vote in favour because we will be wiped out if this doesn’t go through,” Anthony Guildford, a Lonmin investor since 1969, told Reuters.

“But does that mean we will be with the company in the next 10 or even two years? We don’t know,” he said.

The newswire added that some investors, including pensioners, had raised concerns about the consolidation of shares.

“There had to be a better idea than consolidation. I will never see my money (£14,500 in shares) back at £6 where I bought … They were £1.70 last Christmas!,” one investor said.

Liquidations of platinum- and palladium-backed exchange traded funds (ETFs) soared since the rights offer was unveiled.

Platinum-backed ETF liquidations totalled 397,000 ounces in just four days from November 9 while some 572,000 oz of palladium ETFs were sold. The liquidations represent 14% and 18% of total ETFs in each metal.

“We believe many holders of the metal had expected a rational market reaction where the uneconomic ounces of Lonmin would be forcibly removed from the market through bankruptcy or market pressures,” said Andrew Byrne an analyst for Barclays Capital.

“We suspect the potential that this may not happen due to either shareholder support or government intervention (either directly or indirectly), has led many investors to conclude that the risk reward of owning PGM ETFs is negatively skewed and force acted as a catalyst to sell,” he said.