Relieved Magara commits to stem Lonmin outflow

[miningmx.com] – LONMIN CEO, Ben Magara, declared himself relieved shareholders voted in favour of the group’s proposed $407m rights offer and said it was now up to the company to deliver within three years.

“It’s up to the business now to deliver on the business plan which is to be cash flow neutral after capital expenditure within a three-year period at current spot prices. I am very relieved,” he said in an interview.

Magara was commenting several hours after an annual general meeting of Lonmin shareholders in London in which 88% of votes cast approved a resolution the company issue shares for cash. Roughly 54% of Lonmin’s share capital turned up to vote.

Magara said the shareholder turnout was, when set against industry norms, a good one. “It was much higher than normal. It’s way beyond expectations,” he said.

Shareholders also approved a share consolidation and a placement of shares with the 2.2% shareholder Bapo ba Mogale.

Lonmin’s other black economic empowerment (BEE) shareholders, which account for about 23.8% of the company, hold their shares in the platinum producer at a subsidiary level or, in the case of Shankua/Pembani, through Incwala Resources. They are therefore not asked to follow rights.

Magara said there was no truth that Shanduka was not committed to Lonmin. “Shanduka has committed its long-term partnership to the BEE transation,” said Magara. “We talk to Shanduka. It has expressed long-term commitment to partnership of Lonmin,” he added.

Finweek reported earlier this month that Shanduka has opted not to repay the £200m loan (just over $300m at the time) which was used to buy its effective 9% stake in Lonmin, which is held through Incwala.

Shanduka’s 50.03% investment in Incwala was facilitated by the £200m loan raised by Lonmin, and a R300m equity injection by Shanduka. It was followed by a further R175m loan from Lonmin.

The platinum price weakened today while redemptions of platinum- and palladium-backed exchange traded funds soared from November 9 when Lonmin said, in unveiling the terms of its rights issue, that the offer had been under-written.

Magara said, however, that Lonmin was doing the right thing by cutting only its high cost ounces and urged the South African platinum industry to do the same.

“I have seen many economic cycles and this is one of the worst of them; it is the worst of times ever for mining,” he said.

“Those that succeed take actions early which is what Lonmin has done. We will remove high cost production. Everyone will need that,” he said.

Hanre Rossouw, a portfolio manager for Investec Asset Management, said the rights issue was confounding because it was investing in an industry in structural decline. “People who own the stock see hope, but unfortunately it increasingly looks like a case of throwing good money after bad,” he said.