Lonmin needs $500m just to stay afloat, so why dither?
Money is unlikely to be raised from shareholders or financiers, making the Sibanye takeover imperative
Those arguing for a a higher offer for Lonmin in the all-share takeover bid by Sibanye-Stillwater because of improved market conditions would do well to read Judge Dennis Davis’s reasoning in his judgment that allowed the deal to go ahead.
Given on May 17, in dismissing the appeal by the Association of Mineworkers and Construction Union (Amcu) against the Competition Tribunal’s approval of the transaction, Davis drew on Lonmin CFO Barrie van der Merwe’s response to the union’s request for the platinum miner’s latest results to be considered.
Amcu used Lonmin’s quarterly results to end-December, the first of its financial year, to argue that the company was profitable and that the price had improved for platinum group metals (PGMs) the company produced.In his response to the late introduction of these documents, Van der Merwe’s comments should be considered by Lonmin’s shareholders on May 28 when they decide whether Sibanye’s takeover should proceed or if Lonmin can stand alone.Van der Merwe pointed out that over the past decade Lonmin had “consumed” $1.6bn in funds from shareholders, but posted a total operating loss of $3.7bn in three years from 2014.“The slight improvement in some metrics … in quarter one 2019 does nothing to alter Lonmin’s position,” he said, noting that “in fact, Lonmin’s position worsened in the first quarter”. Production costs had increased by 27% quarter on quarter and cash holdings fell by $30m.
Playing devil’s advocate, there is the easy emotional argument from some shareholders that Sibanye is scoring a fantastic deal at a price that disadvantages Lonmin shareholders, given the improvement in PGM prices.
But there are cold, hard economic realities that Van der Merwe explained. He went on to say a $500m cash holding was needed to give Lonmin a future, money it was unlikely to raise from shareholders or financiers.