Johannesburg - Around 35 000 Lonmin employees had secured their future ahead of the festive season after the company’s shareholders backed a key plan to raise money, Franz Stehring, the United Association of SA’s divisional manager for minerals, said on Friday.
These comments come as Lonmin shareholders last week approved a $407 million (R5.7 billion) bailout that will see it continue trading amid a situation when around 50 percent of the industry is loss making after being rocked by strikes and a sliding platinum price that last week fell as low as $846.10 (R11 789), the metal’s lowest level since late 2008.
Approved
Lonmin, which has seen its share price plummet by more than 99 percent this year, lost as much as 87 percent on Friday after shareholders approved the rights issue on Thursday.
The shares closed down 85.64 percent to 29 cents, which valued the company at R742m.
“Although there is a Section 189 (restructuring notice) over our heads, the majority of employees have a future, and can go into the festive season knowing they have a future. We are thankful for the jobs,” Stehring said. Lonmin is cutting unprofitable production through the closure of shafts.
About 6 000 jobs are expected to be lost by September next year as a result of this restructuring as part of a business plan to turn things around.
“Ben Magara, Lonmin chief executive, has assured us that the new business plan is based on a low platinum price. At the end of the day, we will have 6 000 jobs down the drain, but the 6 000 jobs will help protect thousands of jobs. We have to have a balance. I can assure you that he is a very relieved man,” said Stehring.
Eric Gcilitshana, the National Union of Mineworkers’ health and safety secretary, said he was hoping the bail-out would help prevent job losses.
“If you follow Lonmin’s plan, it hopes to see returns by 2018 and that by 2020 it will operate fully without any problems. It gives us hope,” he said.
Gcilitshana wants Lonmin to strengthen its policies.
“We see that either Lonmin or the Association of Mineworkers and Construction Union (Amcu) run the show. Amcu does as it wishes without considering the outcome for the company. If Lonmin continues to allow this, the bail-out is not going to help,” he added.
Majority union Amcu said last week that it was hoping Lonmin would exercise capital discipline. “The company has to plan properly about how it will manage cash flows better,” Amcu’s national treasurer, Jimmy Gama said.
Lonmin was not yet out of the woods, despite the rights offer, added Stehring. “It has made promises which it needs to fulfil, their neck is on the block,” he said.
Magara told Radio 702 that the company had 38 000 jobs last year and the figure had declined to 35 000, after 3 000 employees left the company. “We will get down to 32 000 jobs by end of next year,” he said.
“We are pleased because of co-operation with our unions in persuading members to take voluntary severance packages and retirement packages. We are 50 percent through the plan of cutting jobs,” Magara said.
Magara said Lonmin’s relationship with unions had improved.
Lonmin is not only raising $407m, but also $370m in debt from the banks, which gives it $770m to execute its business plan.
BUSINESS REPORT
Lonmin too ‘complex’ for a buyout
November 13 2015 at 07:30am By Dineo Faku
Johannesburg - Lonmin, with its plunging share price, is unlikely to attract suitors looking for a cheap takeover, amid platinum metal prices at multiyear lows, legacy issues, high cost inflation and low investor confidence in the company.
A $407 million (R5.78 billion) rights issue announced this month that is aimed at boosting its balance sheet and cushioning the blow of the impact of the 27 percent decline of the platinum price over the past year, saw Lonmin’s share price fall by as much as 45 percent on Tuesday.
Lonmin’s share price yesterday lost a further 6.42 percent to close at R2.04, which valued the company at R1.2bn, and over the past year, the share price has fallen by 94 percent.
A factor that will put off prospective buyers is that the company has been raking up losses. The company posted a $207m loss before impairment charges of $2bn in the year to September.
Marc Elliott, an analyst at Investec Securities in London, said it could be a struggle to take over Lonmin, given the depressed platinum price.
The spot platinum price yesterday fell as low as $872.85 an ounce, which was the metal’s lowest level since late 2008. Platinum was last quoted down 0.85 percent at $876.63 an ounce.
Unlikely
“There are a lot of unknowns, and uncertainties around the depressed platinum price,” Elliott said, adding that the entire platinum industry was in a difficult space. He believed Anglo American Platinum (Amplats) and Impala Platinum, the world’s biggest and second-biggest platinum producers, respectively, were unlikely to take over Lonmin.
“Amplats and Impala have enough on their plate. I don’t think they need additional challenges,” said Elliott, adding that “Lonmin is caught between a rock and a hard place”.
Peter Major, an analyst at Cadiz Corporate Solutions, said: “Why would people run Lonmin? Nobody can run that company.”
Adrian Williams, an analyst at Avior Capital Markets, also doubted Lonmin could turn into the target of a takeover.
“Lonmin’s assets require a lot of capital, and anyone who purchases Lonmin takes over its legacy issues,” said Williams.
The difficult labour issues that have dogged Lonmin are also likely to put off investors.
But even if an outright takeover of the whole company does not take place because of the inherent risks, it is still possible, however, that some suitors may find it attractive to buy Lonmin in pieces.
In other words, its value may lie not in the sum of its parts but in its parts.
Lonmin was rocked by a five-month wage strike last year, and more than 40 people were killed during violent protests over wages at its Marikana Mine in mid-August 2012.
Williams believed that potentially Sibanye Gold might be interested in taking over Lonmin’s concentrator and refining assets, but that Amplats would have no interest.
“Taking over Lonmin would go against Amplats’ goal of increasing its production of mechanised ounces,” he said.
Sibanye Gold has been bulking up on platinum after agreeing to buy Amplats’ Rustenburg operations in October and announcing plans to acquire Aquarius Platinum a month later. Sibanye’s spokesman, James Wellsted, said on Wednesday that Lonmin was “complex”.
“I think we have consistently said that we would consider any options that could be value accretive and support our dividend strategy and vision of creating superior value for all stakeholders.
“That said… It is obviously a very complex issue and reading the different reports would suggest that the value is not that obvious or apparent to everyone,” said Wellsted.
Impala made a bid to take over Lonmin in the mid-1990s, but the bid was prevented by the European competition authorities over concerns of the creation of a monopoly.
Precluded
Impala spokesman Johan Theron said the company made a bid to acquire Lonmin in the past, but under different circumstances and in a different time.
“We were precluded from the deal because of anti-competitive concerns by European authorities,” he added.
“We have just finished raising cash to boost our shafts in Rustenburg,” he said, referring to the R4bn capital raise to bolster the company’s balance sheet. “Our priority is to focus on implementing our strategy. It is not for us to comment on our competition. Everybody in the platinum belt is in a difficult space,” said Theron.
Lonmin spokeswoman Sue Vey said she did not think the firm would be the subject of merger and acquisition activity.
“The question of whether Lonmin could be bought by, or merged with, another entity is something we cannot answer now or at any time.
“But what we are certain of is that if the rights issue is approved, then Lonmin can better sustain the continued weakness in platinum group metals (PGM) prices and it will be in a better position to benefit from any recovery in PGM prices in the medium to long term,” said Vey.
In some quarters, there have been calls for the government to buy or bail out Lonmin to save jobs. The National Union of Mineworkers’ health and safety secretary, Eric Gcilitshana, said the union was ”really worried”.
Gcilitshana noted that the vote by Lonmin shareholders regarding the rights issue would impact on more than 35 000 employees.
“We are appealing to shareholders to vote in favour of the cash injection to save jobs… If they are against the financial inject, the government has to step in by giving Lonmin a loan, just like it did with Volkswagen in Port Elizabeth,” said Gcilitshana.
The Association of Mineworkers and Construction Union was not available for comment yesterday, but had said previously that the government should revoke Lonmin’s mining licence as some of its challenges were as a result of management blunders.
Last month, Mineral Resources Minister Mosebenzi Zwane said that the government planned to use the rout in commodities prices to buy assets to widen public participation in the mining industry.
TIMELINE
November 9: Lonmin says its $407 million (R5.78 billion) rights issue would be be discounted by 94 percent.
November 2: Lonmin indicates that it will likely report an operating loss of $207m before impairment charges of between $1.8bn and $2bn.
October 21: Lonmin announces plans to raise around $400m and, at the same time, enter into amended debt facilities with its lending banks for a total of $370m, maturing in May 2020, conditional on credit committee approvals.
July 24: Lonmin says it will close or mothball high production cost shafts, which will affect 6 000 jobs.
June 25: The Farlam Commission of Enquiry finds Lonmin wanting and that the company had failed to provide enough safety measures for employees, especially the non-striking workers, which the company had compelled to go to work despite the violence and intimidation during strike.
Africa's largest money manager may raise current holding of 7%
Public Investment sees $38 million cost of share sale as high
South Africa’s Public Investment Corp. said it will take up as much as 25 percent of Lonmin Plc if some of the platinum producer’s investors don’t follow their rights in a proposed $407 million share sale.
The pledge from the state-owned Public Investment Corp., which already owns about 7 percent of the world’s third-largest platinum producer, comes as shareholders are due to vote this week on whether to proceed with a deeply discounted share issue that will also unlock new debt from banks. Lonmin is reeling from a plunge in metal prices that cut its profit and erased 95 percent of its market value this year.
“The rights issue is the best possible approach to re-capitalizing the company in the current circumstances,” the Public Investment Corp.’s Chief Executive Officer Daniel Matjila said by e-mail on Monday. “Not supporting Lonmin would put the company at risk and it could potentially be harmful to the industry and the communities where Lonmin operates.”
The investment manager views the estimated $38 million cost of the share sale as high, Matjila said. The costs include rolling debt with banks, advice on the rights issue and underwriting fees, he said.
Three banks, including HSBC Holdings Plc, will guarantee the share issue, Lonmin saidin a Nov. 9 statement.
Violence at Lonmin's Marikana mine in 2012 left 44 people dead
Ramaphosa cleared of blame by commission of inquiry in June
Victims of a shooting by police at Lonmin Plc’s Marikana mine in South Africa are suing the company and Deputy President Cyril Ramaphosa for about 1 billion rand ($69 million) in damages, according to a lawyer acting for the group of mineworkers and their families.
The summons on behalf of more than 300 victims seeks compensation for “negligent and intentional acts in connection with the Marikana massacre,” attorney Andries Nkome said by phone on Friday.
Ramaphosa has instructed his lawyers to “defend the action,” according to an e-mailed statement from the South African Presidency on Thursday. Sue Vey, a spokeswoman for Lonmin Plc, confirmed by phone that the world’s third-largest platinum producer received the summons, declining to comment further.
Violence at the mine in August 2012 that erupted from a dispute over pay left 44 people dead -- including 34 shot dead by police on a single day. Ramaphosa was a non-executive director of Lonmin at the time of the killings and chairman of Shanduka Group Ltd., which indirectly held a 9 percent stake in two of Lonmin’s South African units.
Murder Charges
In July, South Africa’s second-largest opposition party, the Economic Freedom Fighters, brought murder charges against Ramaphosa over the deaths of the workers. Ramaphosa, 62, was cleared of blame for the police shooting at Marikana in a report by an independent commission of inquiry released in June. The report said prosecutors should consider charging police officials for their handling of the situation, and criticized Lonmin for failing to provide adequate housing and for ordering employees to go to work while their colleagues where on a violent strike.
President Jacob Zuma suspended police chief Riah Phiyega last month after the commission’s findings questioned her integrity and competence to hold office.
Lonmin declined 8.1 percent to 9.19 pence at 11 a.m. in London, extending the plunge this year to 95 percent.
Ramaphosa on Thursday declined to answer a lawmaker’s question about compensation for the families of the slain miners because of the civil suit, Johannesburg-based Business Day reported on Friday.
For Ramaphosa to become South Africa’s next president, he must win the leadership of the African National Congress, which has ruled the country since the end of apartheid in 1994, at its national conference in 2017. Under party rules, the winner will be its presidential candidate when Zuma steps down in 2019 after serving a maximum two terms.
The Rise and Fall of a Mining Company That Tried to Buy Harrods
Lonmin says it might close should $400 million share sale fail
Founded in 1909 to acquire mining rights in the Rhodesias
From Cecil Rhodes’s legacy in southern Africa to takeover battles gripping the British public and a massacre at one of its mines, the 106-year-old epic that’s Lonmin Plc risks entering its final act.
The company, whose businesses spanned gold mining, hotels, textiles and newspapers in the 1980s, later focused its efforts on platinum and is the world’s third-largest producer of the metal. Managementwarned on Wednesday that it might have to shut down should shareholders reject a $400 million stock sale as it succumbs to the slump in commodity prices.
Lonmin's platinum mine in Marikana
Photographer: Alexander Joe/AFP via Getty Images
Should investors decide not to cough up the money, one of Britain’s most prominent companies of the 20th century and a symbol of the country’s blend of imperialism and capitalism would be consigned to history less than two decades after the death of the man who built it.
“It’s gone from darling of the stock market to completely distraught,” said Bernard Swanepoel, who has been in the mining industry for 30 years and was chief executive officer of Harmony Gold Mining Co. He owns Lonmin shares. “It’s a cyclical business, but no one could have predicted the perfect storm of circumstances."
Unraveling
A failed attempt to mechanize in the mid-2000s, the killing of protesting mineworkers by police at Marikana in 2012, a five-month labor strike last year and a 58 percent drop in the platinum price since 2008 has left Lonmin on the brink of collapse.
In addition to selling new stock, Lonmin aims to refinance $370 million in debt to stem losses from falling metals prices. Investors are due to meet on Nov. 19.
South Africa’s Public Investment Corp., one of the company’s biggest shareholders, supports the share sale, yet Lonmin’s future remains precarious and its place in corporate history all the more remarkable.
Founded in 1909 to acquire mining rights in Northern and Southern Rhodesia, now Zambia and Zimbabwe, the heyday started when Roland “Tiny” Rowland took over as CEO in the 1960s.
Under his leadership, the company’s precursor, Lonrho Plc, turned into a conglomerate owning London’s Observer newspaper, Princess Hotels and Volkswagen dealerships with a few fights along the way that made Rowland and the company into household names in Britain and popular among small shareholders.
Face of Capitalism
Earning his ironic nickname because of his towering frame, Rowland, who died in 1998 at age 80, battled with his own directors in the courts. Then Prime Minister Edward Heath in 1973 called Lonrho the “unpleasant and unacceptable face of capitalism.”
Later, Rowland led a high-profile, bitter and ultimately unsuccessful scrap with Mohamed al-Fayed for control of London department store Harrods. It involved Rowland reporting to police that al-Fayed had broken into his deposit box at the store. The Egyptian businessman settled the dispute with Rowland’s widow.
The late 1990s saw Lonmin reconfigure to focus on platinum and other metals. A company presentation in 2001 said the platinum business had been “buried within a conglomerate.” Lonrho still exists as a company investing in food supply chain management in Africa.
Platinum Story
“People liked the platinum story -- Chinese demand, stricter car emissions standards, no one mentions that anymore -- and Lonmin was the only major producer listed in the U.K.,” said Andrew Lapping, who helps manage 458 billion rand ($32.8 billion) at Allan Gray Ltd. in Cape Town. “The company was extremely profitable for some time.”
Between 2005 to 2007, the stock soared more than 350 percent. Under then-CEO Brad Mills the company attempted to mechanize in the mid 2000s, switching from tens of thousands of workers using hand-drills to larger drilling machines.
“It was a complete failure and is the root cause of the company’s current problems,” said Lapping.
The wheels started to come off in 2008. The global financial crisis gave way to a collapse in commodity prices and a plunge in platinum prices. The company raised about $457 million from shareholders in 2009 and a further $817 million in 2012.
More controversy came in 2012 as South African police opened fire on striking miners at a facility that Lonmin owned in Marikana province. At least 44 people were killed.
The slump has only deepened this year. Earlier this week, the company said it will write down the value of its assets by more than half by taking an impairment of as much as $2.05 billion. The current market value is $187 million, down from $13 billion in 2007.
"The equity holders made good returns for a number of years, but they’re also the first in the queue when there’s significant value destruction," Swanepoel said. "That’s capitalism."
WASHINGTON -- The U.S. Treasury Department will release new "targeted guidance" this week designed to reduce the tax benefits available to U.S. companies that move their tax addresses overseas.
Treasury Secretary Jack Lew informed lawmakers of the coming announcement in a letter on Wednesday, which provided no details on its intentions.
The administration previously has said it was examining "earnings stripping," a practice by which companies load up their U.S. operations with deductions and effectively push profits to low-tax countries.
A person familiar with Treasury's plans said the guidance would indeed focus on earnings stripping.
The Treasury's notice of action comes as Pfizer Inc. considers a merger with Allergan PLC that could be structured as an inversion, where the new company would have its legal address outside the U.S. Pfizer would become the largest U.S. company to invert.
"Later this week, we intend to issue additional targeted guidance to deter and reduce further the economic benefits of corporate inversions," wrote Mr. Lew, who renewed his call for anti-inversion legislation.
The administration wants Congress to prevent U.S. companies from inverting by buying smaller foreign firms.
"Unless and until Congress acts," Mr. Lew wrote, "creative accountants and lawyers will continue to find new ways for companies to move their tax residences overseas and avoid paying taxes here at home."
Rep. Sander Levin (D., Mich), the top Democrat on the House Ways and Means Committee, said he was "encouraged" by Treasury's coming action.
"The fact that American companies, including Pfizer, continue to pursue inversions makes clear that additional steps are needed to stop this trend," he said in a statement.
In September 2014, the Treasury Department announced a first wave of steps against inversions, including rules that could limit companies' ability to use their offshore profits to finance a deal.
Those rules led AbbVie Inc. to abandon a planned inversion, though other companies moved ahead.
The Treasury hasn't yet issued the formal regulations it promised last year, and congressional efforts to revamp the international tax system have stalled.
The September 2014 announcement included a warning that the Treasury Department was considering rules against earnings stripping and that if those rules applied only to inverted companies, they would be retroactive to Sept. 22, 2014.
That means the Treasury announcement coming later this week could affect companies such as Medtronic PLC and Mylan NV that finished their inversions in the past 14 months.
Companies pursuing inversions often promote the deals based on their ability to move cash around the world in ways they couldn't if based in the U.S.
Often, the real benefit comes from earnings stripping, typically achieved through intracompany transactions that concentrate deductions in the U.S., with its 35% marginal tax rate, and concentrate income in jurisdictions with lower rates.
Earnings stripping has been challenging for the government to address with regulations, partly because there are some rules already written into the tax law and partly because the government wants to avoid harming legitimate cross-border transactions.
Treasury's latest move also could cast doubt on the future of more than half a dozen inversions deals that were signed after September 2014 and haven't yet been completed.
Among them: CF Industries Holdings Inc.'s purchase of Dutch fertilizer rival OCI NV and the merger of Coca-Cola Co.'s global bottling operations.
