South African platinum producer Lonmin has launched a third rights issue in seven years. It is selling 27 billion shares at 1p per share, a 94% discount to last week’s price. Investors can buy 46 new shares for each one they own. Lonmin’s stock has slid 90% this year amid a 30% decline in the platinum price. The company also had to cope with strikes and rising costs.
What the commentators said
Lonmin needs the cash to help secure $370m (£246m) in bank loans that will mature in 2020. These are to replace previous credit worth $543m due to be repaid next year. “Given weak demand, aggressive supply cuts would be an obvious answer,” write James Wilson and Andrew England in the FT. “But the platinum industry is built around deep mining shafts where closures are expensive and difficult to reverse.”
Lonmin’s problems have been further “compounded by a costly and ineffective attempt to introduce more mechanised mining a decade ago” and the “complexities” of operating in highly unionised and strike-riven South Africa, which supplies most of the world’s platinum. By following their rights, said Andy Critchlow on breakingviews.com, investors “are effectively betting” that platinum prices will recover by up to 50%. Lonmin “is still on life support”. “I will be amazed”, says Paul Gait of Bernstein Research, “if Lonmin is still trading in five years’ time.”
Originally published in MoneyWeek 12/11/2015: http://moneyweek.com/lonmin-still-on-life-support/