Lonmin backs merger despite improved fortunes


Lonmin backs merger despite improved fortunes

Published Date: 2019-05-13 | Source: Stephen Gunnion | Author: Stephen Gunnion

Lonmin backs merger despite improved fortunes

The platinum producer says it's still constrained by a capital structure that inhibits it from investment in new projects.

Lonmin has reported a $100 million swing in its operating profit, to a $70 million profit for the six months to end-March from a loss of $32 million last year. It credits higher prices for platinum group metals and a weaker rand. However, despite the improvement it says its future as a standalone producer isn't sustainable.

In a production report and business update, the platinum producer said the recovery came despite an 8.4% decline in second-quarter mining production to 2.1 million tonnes, which reduced first-half production by 7.7% to 4.3 million tonnes. It said its operational performance was affected by low morale and high management turnover due to the extended timeline to close its proposed merger with Sibanye-Stillwater after the Association of Mineworkers and Construction Union (AMCU) went to the Competition Appeal Court to try and halt the transaction. It also faced power outages due to Eskom.

Lonmin said full-year sales would be at the lower end of its guidance range of between 640,000 and 670,000 platinum ounces due to the extent of production losses suffered in the first half of the year as well as finalising the transaction with Sibanye-Stillwater.

CEO Ben Magara said the return to profitability and a new $200 million forward metal sale facility had improved the group's liquidity in the short term, helping it settle a $150 million term loan in full and cancelling all its other pre-existing undrawn facilities.

Last month, Sibanye-Stillwater increased its offer for Lonmin due to the recent recovery in PGM prices. Under the revised deal, Lonmin shareholders will get one new Sibanye-Stillwater share for each Lonmin share, up from 0.967 Sibanye-Stillwater shares previously. The additional portion of the share works out at an increase of 3.4%. The revised terms valued Lonmin at £226 million and gave its shareholders 10.9% of the combined group, compared to a value of £285 million and 11.3% previously. That's due to a decline in Sibanye-Stillwater's share price since the initial offer was made in December 2017 and a recent equity issue by the larger company.

The Competition Appeal Court is expected to had down its judgement on the merger with Sibanye-Stillwater on Friday.

Lonmin's shares declined 2% to R11.84 on Friday.

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