Lonmin CEO still backs Sibanye offer even as profit rebounds

Lonmin [JSE:LON] , the platinum producer that’s struggled through years of losses, said its return to profit doesn’t undermine the logic of the takeover offer from Sibanye Gold [JSE:SGL]

While some analysts have questioned the value of Sibanye’s offer, Lonmin Chief Executive Officer Ben Magara continues to recommend it, saying the rebound in earnings isn’t sufficient to resolve the company’s long-term challenges. Operating profit was $70m in the six months through March, after a loss of $32m a year earlier, as platinum-group metal prices recovered.

“Despite the progress made, this does not provide a long-term solution to the capital structure challenges faced by Lonmin, as it is still inadequate to invest in the new projects necessary to avoid shaft closures and job losses and maintain our production profile,” Magara said in a statement on Friday.

Lonmin shareholders vote this month on the Sibanye takeover, which was originally viewed as a lifeline after the company was forced to seek debt-covenant waivers from lenders. The company’s net cash position increased to $71m as of March 31, from $17m a year earlier.

“Net cash, though healthy, is not sustainable for them to go ahead and develop projects,” said Prince Mopai, an analyst at All Weather Capital. “They need a cash injection to maintain their production profile.”

Offer Questioned

Sibanye agreed last month to raise its all-share offer for Lonmin, citing an increase in metal prices since the deal was announced in December 2017. Still, while Sibanye boosted the share ratio it’s offering to Lonmin investors, the value of the deal remains lower than when it was announced, after the company’s share price fell and it sold new equity last month to shore up its cash position.

Some analysts say Sibanye’s offer is insufficient.

Lonmin’s mines around Rustenburg, in South Africa’s platinum belt, are better than those of rivals, said Hurbey Geldenhuys, an analyst at Vunani Securities. PGM prices are also substantially higher, he said.

“Lonmin shareholders can do much better,” Geldenhuys said. “The argument that Lonmin will need significant capital is moot; they can still sell some assets and we have seen their peers in recent weeks raise money for future growth.”

In addition to requiring shareholder approval, the deal is also facing a legal challenge from the Association of Mineworkers and Construction Union, which appealed the conditional approval granted by South Africa’s competition authorities. That compounded operational challenges, Lonmin said.

“Our performance has been impacted by low morale and high management turnover, instability and uncertainty, due to the extended timeline to close the Sibanye-Stillwater transaction caused by AMCU’s appeal,” the company said.

ZAR/USD
16.77
(-0.03)
ZAR/GBP
21.15
(-0.12)
ZAR/EUR
18.95
(-0.03)
ZAR/AUD
11.66
(-0.03)
ZAR/JPY
0.16
(-0.09)
Gold
1798.22
(+0.06)
Silver
18.69
(+0.13)
Platinum
824.50
(+0.30)
Brent Crude
43.14
(+2.10)
Palladium
1961.36
(+0.61)
All Share
55417.89
(-0.66)
Top 40
51154.08
(-0.74)
Financial 15
10472.31
(+1.28)
Industrial 25
76134.69
(-1.67)
Resource 10
52483.78
(-0.20)
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Please select an option Oops! Something went wrong, please try again later.
Results
I'm not really directly affected
18% - 1961 votes
I am taking a hit, but should be able to recover in the next year
23% - 2565 votes
My finances have been devastated
34% - 3818 votes
It's still too early to know what the full effect will be
25% - 2746 votes
Vote