Lonmin seeks $800m in rights issue

[miningmx] — PLATINUM producer Lonmin has proposed a rights issue of
$800m, likely to take place before the end of the year, to deal with the fallout of the
strike at its Marikana operations.

In an update about its future strategy released on Tuesday, Lonmin said
the rights issue would form part of a deal backed by its lenders to reduce the group’s
debt levels and refinance its balance sheet. The rights issue would be underwritten at
a minimum of $1 per share.

Lonmin has existing debt facilities to the tune of $950m, consisting of dollar-
denominated facilities for $700m and rand-denominated facilities for
R1.98bn. Following the rights issue, Lonmin’s dollar-based facility would be reduced
to $400m.

“The amended facilities are conditional on the company raising at least $700m (net
proceeds) of new equity capital by 31 December 2012 and the company applying the
net equity proceeds raised to permanently reduce the [its] US$-denominated
facilities,’ read a company statement.

Lonmin lost 110,000 ounces of mined platinum due to the strike that lasted more
than a month. The consequential loss of income would’ve caused the company to
likely breach some covenants attached to its debt facilities by March 31
2013. These covenants would also be tested for September 30 2012 in November, but
Lonmin does not expect them to be breached at that point in time.

“Debt levels will rise significantly over the coming months to fund the production
ramp up and stock pipeline rebuild,’ the company said. “[It] may breach covenants at
31 March 2013 absent additional equity and amendments to existing bank facilities.’

Lonmin managed to produce 700,000oz of PGMs in its 2012 financial year to end-
September, down from the initial forecast of 750,000oz, but the impact of the strike
would be felt into the new financial year as operations continue to ramp-up. Guidance
for 2013 is 680,000oz.

The first platinum ounces to be produced following the recommencement of operations
are expected on Wednesday.

Commenting on the announcement, Paul Theron of Vestact, said $800m was a big
amount for a company with a market cap which translated to $1.5bn.

“I only want to know one thing. Xstrata, who potentially will have to pony up $200m
as a nearly 25% shareholder, what do they think of this?,’ Theron said in a note to

Numis Securities’ Cailey Barker expressed the same sentiment, saying the rights offer
didn’t come as a huge surprise, “but the quantum may be bigger than expected’.

Lonmin’s JSE-listed shares traded up 2.46% for the day at R68.85 during early-
afternoon trade.