Previous bright mines are going dark
Last week we highlighted the positive performance of the mining sector with the Euromoney Global Mining Index returning +8.55% in October. Certainly not a bad start to the fourth quarter. Platinum producer Lonmin, who has been in the Euromoney Global Mining Index since 1985, topped the companies’ performance league table. That could be a bit misleading.
Lonmin’s stock has been volatile to say the least. At its peak on 12 July 2007 it was ranked just outside the Top 50 companies in the UK with a market cap over GBP 6.5bn. In 2008 Xstrata approached Lonmin with an offer to acquire them at a price which was 42% over Lonmin’s stock price at the time. That was then. This is now.
This past year the stock price has fallen up to 95% and Lonmin posted an annual loss of USD 2.2bn. A majority of the loss can be attributed to the impairment charge over the tragedy at the Marikana mine, but the year before Lonmin also made a significant loss of more than USD 300m. The fact that the entire industry is in decline - not a single platinum producer has increased in value since 2007- will not be a fact lost on Lonmin either. Even if they stay afloat for now, going forward the question will be how to make more money from a product rapidly losing value … the price of platinum has fallen over 20% this past year alone.
All of this leads to now, where Lonmin decided the only way to possibly pay off the half a billion USD debt due next year is by a 46 for 1 rights issue with shares selling for an astounding GBP 0.01. Shareholders choosing not to subscribe will see their holdings diluted so much that one might say this is effectively a re-IPO. It would seem the thing to do to take up the option as a shareholder, but with all of the volatility over the past decade building up to the uncertainty of the past week, Lonmin has lost shareholder confidence.
Even with the rights issue underwritten, things look bleak. Lonmin is looking to let go 15% of its workforce and over 3,000 employees have recently left voluntarily.
The December 2015 quarterly review of the Euromoney Global Mining Index will be carried out during week commencing 07 December and, with the current market capitalisation cut-off level of USD 250m, Lonmin looks set to exit the Index for the first time - it’s been there since the start of the index back on the 31 December 1985. However there are positive rumblings the underwritten rights issue, which is scheduled to be effective 20 November, will raise USD 400m which would save Lonmin from an exit from the Index.
This is not the first rights issue in Lonmin’s history. In fact this now makes the third since only 2009. In 2012, exactly 3 years ago from the current rights issue ex date (20 November), the company raised over USD 800m. Back in 2009, they raised USD 500m. With new capital available to them, Lonmin will be hoping the future will be much more secure.
For further information on Euromoney Global Mining Index please refer to http://www.euromoneyindices.com/Indices#Euromoney-Global-Mining-Indices
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