Bloomberg News

Lonmin May Struggle to Refinance Debts After Strike, BMO Says

August 21, 2012

Lonmin Plc (LMI), the platinum producer that’s shut its biggest mine after violence killed 44 people, may struggle to refinance loans following labor unrest and a slump in the price of the metal, BMO Capital Markets Ltd. said.

Given “depressed platinum-group metal prices and the current state of capital markets, any refinancing on terms favorable to the company and shareholders could prove challenging,” Edward Sterck, a London-based analyst at BMO Capital, wrote in a note e-mailed yesterday.

Lonmin, the third-biggest platinum producer, said it would probably miss debt conditions and may have to issue shares after a strike that sparked violence halted output at the Marikana complex, west of South Africa’s capital, Pretoria. The mine accounts for 96 percent of Lonmin’s output and is one of several platinum operations to be suspended by labor action this year.

The disruption has crimped revenue needed to fund mines and service debt. Lonmin may have to consider raising $1 billion by issuing stock to current shareholders, Societe Generale SA (GLE) said Aug. 16. The company, like other South African producers of the metal, was already grappling with higher wage and power costs and lower prices.

Platinum, used in jewelry and pollution-control equipment for cars, has declined 21 percent in the past 12 months and traded at $1,505.99 an ounce by 5:52 p.m. in London yesterday.

“The balance of probabilities is that the impact on production of the current events will result in covenants being breached at the next test date on Sept. 30,” Lonmin said in a statement. The company is considering its options, including issuing stock, spokeswoman Susan Vey said by mobile phone.

Police Shootings

Police shot dead 34 people near the Marikana site on Aug. 16 after a group of about 3,000 protesters gathering on a hill refused to disperse. Ten people, including two police officers, were killed in clashes around the property the week before. Output at Marikana has been at a standstill since Aug. 10.

“I don’t really see light at the end of the tunnel,” Abhishek Shukla, an analyst at Societe Generale in Bangalore, said by phone yesterday. Even after issuing stock to current shareholders, “they are not a sustainable operation.”

Lonmin had net debt of $356 million as of March 31, the company said in May. Its ability to meet borrowing agreements is hampered by its production losses, which amount to 2,500 ounces a day at Marikana.

Returning Workers

Thirty-three percent of the 28,000 workers at the site reported for duty yesterday, compared with less than a third on Aug. 20, Vey said. One in five rock-drill operators came to work, while attendance at the smelting units and plants was at about 80 percent. Work could start “in isolated areas,” she said.

Lonmin backed down from a threat to fire striking employees as it struggles to balance the need to calm the conflict and revive output to help meet debt obligations. The company, which won’t take disciplinary action on workers who don’t return this week, had previously given the 3,000 striking drillers until yesterday to come back or face dismissal.

President Jacob Zuma, who declared a national week of mourning on Aug. 17, rejected criticism that his handling of the worst police action since the end of apartheid will hurt investor confidence in the biggest platinum-producing nation.

In Control

“Our observation is that nothing has happened to investor confidence,” Zuma, 70, said in an interview at his offices in Cape Town yesterday. “I am convinced that the action that was taken so far helped to show South Africa is in control.”

The violence that started Aug. 10 was the result of union rivalry, Lonmin said Aug. 16. The Association of Mineworkers and Construction Union has been recruiting members at Lonmin, at the expense of the dominant National Union of Mineworkers.

Northam Platinum Ltd. (NHM), which owns the Zondereinde mine about 100 kilometers (62 miles) north of Marikana, is “deeply concerned” the violence in the platinum industry may spread, spokeswoman Marion Brower said in an e-mail. There has been “some activity” from the AMCU in attracting new members at Zondereinde, where NUM is the representative union, she said.

Earlier this year, fighting between union members at Impala Platinum Holdings Ltd. (IMP)’s operation near Marikana led to the closure of the world’s largest platinum mine for six weeks and four fatalities. The company lost more than 120,000 ounces of output in the strike that started in mid-January.

Anglo American Platinum Ltd. (AMS), the largest producer of the metal, and Aquarius Platinum Ltd. (AQP), the fourth-biggest, idled mines this year, expecting weak prices to continue. They mine most of their metal in South Africa, which accounts for more than three-quarters of global output.

The yield on Aquarius’s dollar bonds due 2015 surged 15 percentage points this year, reaching 23.62 percent yesterday.

Zuma will probably announce the terms of reference for a judicial commission of inquiry into the mine killings by the end of the week, spokesman Mac Maharaj said by phone.

To contact the reporters on this story: Matthew Hill in Johannesburg at mhill58@bloomberg.net; Carli Cooke in Johannesburg at clourens@bloomberg.net.

To contact the editor responsible for this story: Amanda Jordan at ajordan11@bloomberg.net.


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