Lonmin Wins Shareholders Support for Rights Issue

on Nov 20, 2012

On 19 November 2012, Bloomberg reported that the Johannesburg-based platinum producer Lonmin (LON:LMI) won support from shareholders including its largest investor Xstrata (LON:XTA), for the recently proposed $817 million (£513 million) rights issue aimed at restructuring the platinum producer’s pressured balance sheet.

**Shareholders Back Lonmin’s Rights Issue**
Lonmin said that out of the votes cast more than 91 percent were in favour of the rights issue, with the investors participating in the vote representing almost 78 percent of the company’s shares. “We can now move forward, with confidence, continuing our delivery of the Lonmin Renewal Plan,” pointed out Lonmin’s Chairman Roger Phillimore, as quoted by Bloomberg.

Lonmin, which in the beginning of November reported a pre-tax loss of $698 million (£436.7 million), adopted the issues rights decision with the intent of repairing its finances and avoiding the breach of debt covenants after the South African labour unrest severely impacted its platinum output.
The platinum producer is offering nine shares for every five held at a price of 140 pence, with the price representing a discount of 44.4 percent to the theoretical ex-rights price (TERP), or the market price the shares would theoretically have following the rights issue.

**Small Shareholders Criticise Company Board**
Despite the shareholders’ support as regards the rights issue, Reuters reports that some Lonmin investors grilled the platinum producer’s board over strategy, leadership and the future of the company. Small shareholders questioned earnings, the company’s failure to predict union trouble, and even Lonmin’s survival.

!m[Investors However Question Company Strategy And Future ](/uploads/story/858/thumbs/pic1_inline.png)“The figures just look very, very sick and I don’t know where we go from here,” noted private shareholder Robert Muriel, as quoted by Reuters. “All right, you have the assets in the ground, but – oh boy.” Reuters also quotes Lonmin investor Josie Rowland as criticising the board for lacking sufficient executive directors to “drive” the company and questioned why Lonmin was unable to remain abreast of union issues, despite the presence of the former National Union of Mineworkers (NUM) leader Cyril Ramaphosa on the board.

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**Long Road to Recovery**
Reuters reports that although Lonmin’s shares rose by more than nine percent in London, recovering some of the losses incurred in 2012, analysts as well as investors said that the rights issue did not solve the platinum producer’s problems such as high costs, weak platinum demand as well as the absence of a permanent CEO. The position is currently filled by Simon Scott, with Lonmin’s CEO Ian Farmer stepping aside three months ago for medical treatment.
Yet, the rights issue will help patch up Lonmin’s balance sheet, with Reuters quoting Nomura’s analyst Tyler Broda as saying that it would “allow shareholders to avoid a very bad scenario – the company going bankrupt.”
In addition, the rights issue might also prompt Lonmin’s largest shareholder Xstrata come up with a new takeover proposal, with the previous two offers having been rejected by Lonmin’s management.
Reuters quotes a source close to one major Lonmin shareholder as saying that that it was important that the rights issue was completed. “But it is the beginning of a much longer recovery plan.”

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