Lonmin shareholders will on Thursday decide whether to approve a deeply-discounted $407 million share issue, as the beleaguered platinum producer seeks cash to stay afloat.
Battered by strikes, rising costs and weak platinum prices, South Africa-focused Lonmin said last month it also planned to raise another $370 million in loans to refinance debt currently due in May 2016.
Lonmin shares have tumbled more than 90 percent this year and the firm has knocked $1.8 billion off the value of its assets.
The depth of Lonmin’s plight was illustrated last week when it priced its rights issue at just 1 pence a share – a huge discount to the stock’s Nov. 6 closing price of 16.25 pence on the London Stock Exchange.
Analysts said the low price was a strategy to force shareholders to take up their entitlement or risk having their investment in the company heavily diluted.
Lonmin has warned that if it doesn’t raise the cash it needs, its shares could be suspended.
“Investors are being left with little option but to follow their rights given the very deep discount,” Investec analysts said in a note.
“However, compare Impala and Lonmin capital raising – Do you follow your rights when proceeds are being used to pay debt or if proceeds are being used to finance a new lower cost operation?”
South Africa’s Impala Platinum last month raised 4 billion rand ($282 million) through the issue of new shares to fund the development of two shafts.
Lonmin has said its share sale has been fully underwritten.
South Africa’s Public Investment Corporation (PIC), which owns about 7 percent of the company, has committed to buying its full entitlement and has sub-underwritten a material portion of the issue, over and above its entitlement, Lonmin said.
“They must show us now that they can make a difference. If they have to come back to us in a year, that will mean that they were dishonest and their integrity will be brought into question,” PIC Chief Executive Daniel Matjila was quoted as saying in the Sunday Times newspaper.
Lonmin still has to convince the wider market it can be a viable business with platinum prices near seven year lows beneath $850 an ounce.
The metal used in emissions-capping diesel auto catalysts and jewellery is on track for a 30 percent decline this year, its third consecutive annual fall, hobbled by slowing demand in top consumer China.
This would be a third rights issue for Lonmin in six years after the firm asked for cash from shareholders in 2009 and 2012 to shore up its balance sheet.
Lonmin was hit hard last year by a five-month strike – South Africa’s longest and costliest – because, unlike peers such as Impala Platinum and Anglo American Platinum, almost all its operations were in the strike-affected area.
The rights issue is being underwritten by HSBC, J.P. Morgan Cazenove and Standard Bank.