Stock market investors often forget the primary reason they receive a higher return than leaving the money in the bank. It’s called risk, the ultimate reflection of which is when the company they have bought into goes bankrupt. It happens. More often to smaller businesses, but every now and then a whale goes belly up. And the world’s third largest platinum producer Lonmin is warning that it is on the brink of joining this notorious group. The combination of the sliding platinum price and South Africa’s inflexible labour legislation and business unfriendly politicians has taken this once proud company to the edge of bankruptcy. Shareholders are being asked, once again, to pump in fresh capital. If they don’t, the company now warns, they’ll lose everything. One ray of hope is that SA’s Public Investment Commissioner has agreed to cough in its 9% share and more if required. The “more” could be a large slice of the $400m. It is inconceivable that an organ of State would stand by while Lonmin collapses, killing the jobs of 28 000 direct and indirect employees. This could be the time for courageous investors to become greedy when everyone else is fearful. – Alec Hogg      Â
By Andre Janse van Vuuren
(Bloomberg) — Lonmin Plc, the world’s third-largest platinum miner, said shareholders risk losses if they block a $770 million refinancing plan that includes the sale of shares.
Lonmin wants to raise $400 million in a share sale and $370 million in loan facilities from banks as it seeks to refinance debt amid a slump in prices for platinum. The company’s shares have fallen more than 85 percent in London trading this year.
Shareholders will vote on whether to proceed with the rights issues and debt facilities at a meeting on Nov. 19, Lonmin said in a letter to shareholders posted on its website on Tuesday. If they reject the plans, “the group may have to cease trading and shareholders could lose the entire value of their investment,” Lonmin said.
Read also: Lonmin’s $770mn rescue plan: Cuts 6,000 jobs, $400mn in new shares
The share sale will be at a “significant discount” to the price of Lonmin’s stock prior to the day that it enters an underwriting deal, the company said. Lonmin closed at 25.5 pence per share in London on Tuesday, giving it a market value of about 150 million pounds ($231 million.)
Lonmin’s plan to refinance its balance sheet comes after it embarked on cutting jobs, closing shafts and reducing expenses to stem cash losses. The terms of the share sale will be announced on Nov. 9, Lonmin said when it first reported on the plan last month.
South Africa’s Public Investment Corp., which has about a 7 percent stake, will support the sale and may underwrite a “material portion” beyond its entitlement, Lonmin said.
Read also: Lonmin – now so cheap you can buy company for cost of single mine shaft
The Bapo traditional community in South Africa, which acquired a 2.24 percent stake in Lonmin last year as part of a so-called black economic empowerment deal, cannot pay for new shares, Lonmin said. Shareholders will be asked to approve the granting of new shares to the group to maintain the proportion of its holding, Lonmin said.
Regulations in South Africa require that mines should be owned at least 26 percent by black individuals or companies as part of a policy to redress economic imbalances created under whites-only apartheid rule.
