CRISIS-HIT miner Lonmin is now considering a rights issue to shore up its balance sheet as crucial funding tests loom. The group earlier this week denied it would need to tap the capital markets for cash.
Lonmin admitted the U-turn yesterday, saying it was “reviewing all the options available to strengthen its financial structure” to recoup losses as the strike continued at its Marikana mine in South Africa.
It is thought the world’s third-largest platinum firm is considering a $1bn (£633m) fundraising.
Lonmin also said yesterday that it will probably breach its loan covenants next month due to the ongoing production strike.
Analysts from Morgan Stanley estimate that 15,000 ounces of platinum output have been lost as a result of the strike, and the figure is a moving target.
If no weeks of production had been lost the analysts put Lonmin’s net debt to earnings ratio, which denotes how many years it would take a company to pay back its debt if its earnings remain constant, at 2.9 times based on spot prices at the end of September.
But this quickly accelerates to a ratio of 4.76 times if four weeks are lost, meaning it would take Lonmin nearly five years to pay back its debt if the strikes drag on into September.
Deutsche Bank forecast on Monday that Lonmin would lose at least three weeks’ worth of production, or 50,000 ounces of platinum, due to the trouble at the mine, which last week saw 44 workers killed in clashes with the police.
Michael Rawlinson, head of mining and metals at Liberum Capital, said yesterday: “Investors have been put off again by this news from investing in South African mining. Whilst labour and union issues are most acute in labour intensive platinum and gold sectors, the heightened politicised investment environment is turning them off other mining sub-sectors too.”
Meanwhile, around a third of Lonmin’s 28,000-strong workforce reported for work yesterday, including around 20 per cent of the striking rock drill operators.
The platinum firm added there was a “highly visible police and security presence” at the operations if any incidents of intimidation were to start again.
Lonmin has agreed that no disciplinary action against those illegally striking will be taken this week, after South African President Jacob Zuma declared a week of mourning for the dead workers.
The shares closed up 0.41 per cent at 612.5p yesterday as news of the funding broke.