Lonmin is rebuilding its cash position to ensure that shareholders in takeover company Sibanye-Stillwater do not oppose the critical deal to save mines and jobs in the world’s third-largest platinum miner.
Sibanye CEO Neal Froneman has warned on a number of occasions that shareholders in the gold and platinum miner may baulk at the deal if Lonmin is laden with debt and has not done enough to restore financial health to its operations.
Lonmin gave its own and Sibanye’s investors a glimpse of its cash position and its operational performance nine months into its 2018 financial year as it embarks on a process to cut 12,600 jobs, and also to close old, unprofitable shafts and prepare itself for a new owner.
Lonmin ran into dire financial difficulties in recent years as the platinum price remained stagnant against strong increases in costs and labour unrest.
Matters came to a head in 2018 when Lonmin was about to breach its debt covenants, triggering the repayment of a $150m loan that would leave it in an untenable position.
Lenders suspended the covenant measurements until February 2019 to give the R5bn, all-share takeover by Sibanye a chance to conclude. Since the start of 2018, shares in Lonmin and Sibanye have fallen by more than 50%.
By the end of June, Lonmin had net cash of $23m, up from $17m at the end of March, giving it a tiny cash position if lenders demanded the loan be repaid.
In its third-quarter production and sales update on Friday, Lonmin noted that while its platinum sales fell by 2.3% to 176,121oz in the three months to end-June, compared with a year earlier, its overall sales of platinum group metals (PGMs) were up 2% to 352,128oz, with higher ruthenium and iridium sales.
Platinum sales for the nine-month period reached 463,870oz and Lonmin kept its full-year sales target at between 650,000oz and 680,000oz.
Lonmin achieved a 13% higher rand price for the basket of PGMs it sold during the quarter. It realised R13,017/oz as the improved dollar price for the metals was offset by a stronger rand against the dollar.
The move away from old, high-cost shafts showed benefits during the quarter, with costs falling by 11% to R11,781/oz of PGMs produced. For the nine-month period, costs were R12,538 per PGM ounce, and Lonmin said it would meet its cost guidance of R12,000-R12,500, albeit at the upper end of that range.
As part of Lonmin’s efforts to shore up its balance sheet and ensure Sibanye’s shareholders will vote in favour of the deal that would give the miner a PGM smelting and refining complex in SA, Lonmin has sold a Zimbabwe investment. Lonmin is selling its 50% stake in Petrozim for $14.75m cash to the National Oil Infrastructure Company of Zimbabwe. Petrozim will also pay Lonmin an $8m dividend.
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