Platinum Producer Lonmin to Raise $800 Million from Shareholders

on Oct 31, 2012

The world’s third largest platinum producer Lonmin (LON:LMI) is to raise $800 million (£496 million) from shareholders, Reuters reported on October 30. The company is planning to finance a recovery after weeks of wildcat mining strikes which severely disrupted its platinum production. Lonmin, however, reported optimistic sales results for the fourth quarter, with the news pushing the company shares up.

**Lonmin to Raise $800 Million**
The South African miner will offer $800 million of stock to investors to help restructure its pressured balance sheet as soon as possible. Reuters quotes Lonmin’s acting CEO Simon Scott as saying that the amount will be sufficient to “put the company in a position where it can reduce its current debt levels and manage the business on a stable platform.” Analysts have speculated that the platinum producer could raise $1.5 billion, virtually its current market value.

“This is a large rights issue for the company given the shrinking of the market capitalisation,” noted Fairfax I.S. Plc, as quoted by Bloomberg. “Given a soft demand environment for car demand and margin erosion from higher wage settlements, platinum prices still need to rise from here to make this a clear buy case.”
Lonmin however has said that new debt conditions agreed with its lenders depended on the company raising at least $700 million in new equity capital by year-end.

**HSBC, Citigroup to Manage Share Sale**
!m[Strike-Hit South African Miner Plans To Cut Debt And Finance Recovery](/uploads/story/686/thumbs/pic1_inline.png)Bloomberg quotes people familiar with the Lonmin situation as saying that the platinum producer has selected HSBC Holdings (LON:HSBA, NYSE:HBC, HKG:0005) and Citigroup (NYSE:C) to manage the share sale. Officials at the banks, as well as Lonmin itself have declined to comment, with the company expected to release details of the transaction in due course.

Reuters reports that Lonmin’s largest single shareholder Xstrata (LON:XTA) holding a 25 percent stake, has said it would consider its position following an assessment of Lonmin’s strategy, business plan as well as management capabilities.
**Sales Volumes Up**
In the meantime, Lonmin reported an increase in sales for the twelve months ended September 30, with the company saying that efforts to ramp up activity were progressing better than expected. In a press release, Lonmin noted that it sold 476,104 PGM ounces in the fourth quarter of the 2012 financial year, a three percent increase, relative to the same period in 2011. Bloomberg reports that as a result of the positive sales data, Lonmin’s shares jumped by seven percent in London.

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And while the platinum producer’s sales were up, production was expectedly down from the previous year, with Lonmin reporting that it produced 1.63 million tonnes during the fourth quarter of the 2012 financial year, a 50.4 percent decrease relative to the same period in 2011.
Lonmin forecasts platinum production for the 2013 financial year to be around 680,000 ounces, and expects sales of 660,000 ounces, with the shortfall of 20,000 ounces representing the necessary build-up of pipeline ounces to replace stocks depleted during the fourth quarter of the financial 2012.

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