PIC defends Lonmin stake in Parliament

[miningmx.com] – THE Public Investment Corporation (PIC) is upbeat about the future of Lonmin and the ability of the prices of the platinum group metals (PGMs) to increase in the near future.

In a reply to a parliamentary question posed by the FF Plus’ Anton Alberts about the PIC’s decision to invest in Lonmin, the PIC said the long-term fundamentals for the Platinum Group Metals support higher prices than what is currently prevailing.

“These metals will be playing a key role in emissions control measures around the world,” the PIC said in its response, following the PIC’s decision a month ago to increase its share in platinum producer Lonmin to just below 30% after buying more shares in the platinum producer’s rights issue.

Alberts wanted to know on what grounds the PIC, which manages public service pension funds, could justify buying more shares in Lonmin’s rights issue, thereby putting funds from the Government Employees Pension Fund at risk.

“This mine (Lonmin) is almost bankrupt and in the foreseeable future no profits will be generated,” Alberts said.

The PIC defended its decision to increase its stake, saying that Lonmin had a sound asset base and its performance had been impacted by the short-term dip in commodity prices. “However, based on the PIC’s outlook for PGM prices, value can be restored.”

The corporation also pointed out that 88% of the shareholders represented at a Lonmin meeting, including members of the Government Employees Pension Fund and PIC, voted in favour of the rights issue.

“The outcomes of the voting are a clear indication that other stakeholders see the long-term value of the company. Lonmin is a going concern and has neither been declared bankrupt nor has it applied for business rescue.”

Lonmin approached the PIC about its rights issue in early November at a time when 35,000 jobs at the platinum mine were at risk.

Peter Major, mining strategist at Cadiz Corporate Solutions, told Miningmx that “… because platinum is currently trading at $860/oz, about $100 below its average “real’ price since 1940 of $960/oz, that it certainly should improve in the next year or so.

It’s also worth noting that South Africa controlled about 70% of world production, but has since cut its production from a peak of 5.3 million oz in 2006 to about 4.1 million oz in 2015. Platinum should see $1,000/oz again before it sees $800/oz,” he said.

Major believes the PIC was right to take up Lonmin’s rights offer. “They are heroes for saving 35,000 great jobs. But I’m glad it’s not my money. Lonmin should never have been in this position in the first place,” Major said.

“It was the most efficient, productive platinum produce in the world until about 12 years ago. But the unions and government have created such a toxic, unworkable environment now through a lot of bad decisions, bad policy, bad actions and – even greed – that Lonmin today (and the industry) is in a terribly fragile condition.”