It was the extraordinary decision in March 2017 by then-president Jacob Zuma to fire finance minister Pravin Gordhan that saved Lonmin from an ignominious end and opened the way for a more dignified and considered exit as a listed platinum company.
Lonmin, then the world’s third-largest platinum miner, was operating under the constraints of debt covenants as it lurched from crisis to crisis brought on by legacy decisions around strategy, the mishandling of labour matters that ultimately led to the Marikana massacre in 2012 and increasingly desperate and unpopular calls on its shareholders to prop up the business.
As the company’s lenders were to assess the debt covenants in Lonmin, which was in breach of those contracts, Zuma fired Gordhan, sending the rand sharply weaker.
“If he hadn’t done that we would have breached our covenants because the rand would have been too strong for those tests. It was the only thing that saved us,” said former Lonmin CFO Barrie van der Merwe.
The outstanding loan of $150m was, however, unlikely to have been called in by the consortium of international banks.
“No international bank in London would have said they want to run Lonmin’s mines. That wouldn’t have been sensible but they would have had a stronger seat at the table … the board most likely would have placed the company in business rescue or administration,” Van der Merwe said at the end of his three years at Lonmin and ahead of starting a job in Australia.
The scare underlined the desperate efforts by Lonmin’s management and board that year to find sustainable options to save the company, which was essentially one problem away from meeting its end. It had barely enough capital to pay for a few months of operational expenses let alone growth.
Lonmin began an asset disposal programme to sell processing capacity in its smelters and refineries, sell its Limpopo and Akanani projects, and find funding or partners to extend its Rowland mine and complete the partially built K4 mine.
It looked at adding coal to supply Eskom, buying mines Anglo American was putting on the market. It considered buying gold mines for an alternative revenue stream.
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Lonmin’s finance team spoke to 53 potential lenders, including metal streaming, a funding scheme where Lonmin would be paid upfront for life-of-mine deliveries of certain metals, as well as using yet-to-be-processed metal as security.
“We didn’t land anything conclusive on new money, with what were essentially international counterparts. SA banks had by that stage walked out. It all came down to the perceptions of Lonmin as a brand, SA and SA mining. Those things made it very difficult to conclude anything,” Van der Merwe said.
The debt would have been expensive, with onerous conditions, anyway, not making it an ideal option, he said, adding a further equity injection would have been far more preferable.
However, after four approaches to shareholders in 2009, 2010, 2012 and 2015, that avenue had closed, and the $1.6bn raised from shareholders had done little to save the company, which ran up $3.7bn in operating losses in three years from 2014.
“Lonmin suffered from an exhausted balance sheet. The drive to mechanisation was the start of it, where the balance sheet was driven too hard. Mechanisation failed. We went into it and reversed out of it at a total cost of $1.5bn, which had to be funded by equity,” Van der Merwe said.
Departing Lonmin CEO Ben Magara said a second turning point for Lonmin was the high-cost purchase of the undeveloped Akanani ore body for $441m near Anglo American Platinum’s Mogalakwena mine, the most profitable platinum mine in the world.
If Lonmin had not wasted that $2bn, it would have been a “real contender in the mergers and acquisitions space, giving Lonmin the operational and geographic diversity we so desperately needed,” Magara said in a separate interview.
Van der Merwe was unequivocal about what it meant for Lonmin. “Lonmin consumed $2bn and it gave nothing back. That alone does nothing to whet the appetite of any fund provider.”
Asked about the reported R130m in share options that management would get after the Sibanye takeover of Lonmin, Van der Merwe said the number was actually closer to R90m and would be divided between 35 senior managers including Magara and himself.
Magara pointed out that he had in his six years with Lonmin foregone three pay increases, three years of bonuses and that not one of his long-term incentive schemes had paid out.
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