Lonmin’s losses show debt profile needs urgent attention

November 9, 2015, 10:29am

By Allan Seccombe, Business Day Live. Photo: Business Day Life

LONMIN, the world’s third-largest platinum producer, recorded a $1.899bn loss in its 2015 financial year, underpinning the urgency with which it needs to make deep changes to its business and amend its debt profile.

Lonmin earlier on Monday unveiled a hugely discounted and underwritten rights issue proposal of 94% to raise $407m before costs, the key condition to amending its debt facilities that fall due in the middle of next year.

Lonmin reported a loss of $1.899bn for the year to end-September compared with a loss of $203m the year before. It notched up impairments of $1.8bn as it closed some mines and scaled back others to harvest the remaining reserves.

CEO Ben Magara said that "2015 has been a tough year for Lonmin, given the adverse pricing environment and the imminent maturity of our debt facilities in mid-2016".

At the start of Lonmin’s 2015 financial year last October, the platinum spot price traded at $1,274/oz but ended the year at $904/oz, a drop of 29%. Compared with 2014, average prices were down 20% at $1,134/oz for the year, it said, adding 4% of global mined supply of platinum had been shut or deferred during the course of this year.

"Forced closures of mines or shafts may be inevitable across the industry in 2016, as minor adjustments to supply will not be enough to rebalance the market if current low prices were to prevail," Mr Magara said.

Lonmin has narrowed its focus to just four of its new-generation mines in an effort to drive itself down the cost curve in a weak platinum market. These four shafts would generate 90% of Lonmin’s annual production, which will fall from about 750,000oz of platinum to 700,000oz in its 2016 financial year and 650,000oz in the following two years.

Lonmin has cut half of the 6,000 jobs it had notified the market about recently. It has a workforce of about 35,000 people.

"Our priority is to run the business with a focus on cash generation and profitable ounces. We are repositioning Lonmin and aiming for the business to generate positive free cash flow after capital expenditure in this current low environment," Mr Magara said.

Securing the backing from shareholders at a meeting on November 19 for the rights issue is critical to securing the amended debt facilities from a consortium of 10 banks, which have agreed to advance debt facilities of $370m.

Lonmin has $505m of debt falling due in the next 12 months and it has cash of $320m and inventories of $281m.

Lonmin has warned shareholders to vote in favour of the rights issue or face losing their investment in the company.

Lonmin produced 740,315 saleable platinum ounces in concentrate, which was 94.6% higher than last year when there was a five-month strike, but 1.4% lower than 2013.

Lonmin sold 751,560oz of platinum, making up two-thirds of its $1.3bn of revenue. Other platinum group metals and base metals made up the balance.