Lonmin priced its $407 million share issue at a 94 percent discount as the platinum miner fights for survival in the face of low prices and after knocking off $1.8 billion of the value of its assets.
Battered by strikes, rising costs and weak platinum prices, Lonmin said last month it planned to raise the money and another $370 million in bank loans to refinance debt due in May 2016. The miner is also closing some shafts, cutting its workforce by about 15 percent and has reduced capital spending.
Lonmin said on Monday it plans to sell 27 billion shares at 1 pence each to shareholders in a 46 for 1 rights issue, a huge discount to the stock’s Friday closing price of 16.25 pence.
The company had signalled the equity cash call would be issued at a “significant discount” and it has urged shareholders to approve the sale at a meeting on Nov. 19, saying the money was crucial to its survival.
“The rights issue has been fully underwritten and we hope shareholders vote positively. We firmly believe that the rights issue is in the best interest of our shareholders,” Lonmin Chief Executive Ben Magara said in a statement.
Lonmin’s shares, which have tumbled 90 percent this year, rose 10.7 percent to 17.83 pence as of 1300 GMT on Monday on hopes the underwritten rights issue would buy the company more time to carry out its restructuring plans.
Lonmin has said that if shareholders reject the issue, lenders would not provide the loans needed to push back the maturity of the 2016 debt to 2020.
Lonmin said South Africa’s Public Investment Corporation (PIC), which owns about 7 percent of the company, had committed to buying its full entitlement and had “sub-underwritten a material portion” of issue over and above its entitlement.
PIC said it would comment later when asked how much more of the rights issue it would take. Lonmin’s other top shareholders include South Africa’s Kagiso Asset Management, Capital World Investors and Standard Life Investments.
Magara declined to say whether other shareholders had committed to take up the rights issue.
“What is crucial is that it is fully underwritten and no bank would have committed that if they did not have the confidence of how the existing shareholders would follow their rights,” Magara said.
Investec analysts said investors had little choice but to sign up: “Management is effectively forcing shareholders to follow their rights, or be diluted into obscurity.”
Lonmin also had to rely on an $800 million rights issue to shore up its battered balance sheet in November 2012.
“This is another piece of disappointing news for shell-shocked investors in the mining space. An incredibly dilutive rights issue, with very high advisory fees attached,” said Royal London Asset Management’s portfolio manager Martin Cholwill.
Lonmin said net proceeds would be $369 million, after deducting fees and expenses.
Lonmin was hit harder than other producers by a platinum mining strike in 2014, South Africa’s longest and costliest, because unlike its peers, virtually all its operations are concentrated in the strike-affected Rustenburg area.
In July, the miner announced a plan to close or mothball several mine shafts, putting 6,000 jobs at risk. It said on Monday about 3,100 people have since left the company, leaving it with a workforce of some 35,000, including contractors.
The company also said on Monday its full-year pretax loss widened to $2.26 billion from $326 million and that it had booked a $1.8 billion charge on its assets as metal prices fall and it restructures its business.
Spot platinum has recovered from seven-year lows of less than $900 hit last month on concerns about oversupply and slowing demand in top consumer China, but is still at levels last seen in 2009.
“Lonmin will continue to be free cash flow negative if the spot price continues, despite the operational restructuring,” BMO Capital Markets analysts said. “However, the refinancing appears sufficient to see the company through at least the next three years if the current environment prevails.”
Greenhill advised Lonmin on the rights issue, which is being underwritten by HSBC, J.P. Morgan Cazenove and Standard Bank.