Lonmin Seen Weakest in Holdout Over 18-Week Platinum Strike

May 30, 2014 12:54 pm ET

(Updates with court hearings in sixth paragraph.)

May 30 (Bloomberg) -- Lonmin Plc faces the most pressure among the three largest platinum producers to end an 18-week pay strike as it may have to close mines sooner than peers to save cash, Investec Ltd. and SP Angel Corporate Finance LLP said.

The stoppage by more than 70,000 workers in South Africa, which has the world’s biggest reserves of the metal, has shut all of Lonmin’s operations, about 60 percent of Impala Platinum Holdings Ltd.’s production and less than half that by Anglo American Platinum Ltd., the world’s biggest producer. They have lost 20.3 billion rand ($1.9 billion) in revenue since Jan. 23, making it the industry’s longest and costliest strike.

The employees, members of the Association of Mineworkers and Construction Union, want basic monthly salaries for entry- level underground laborers to be more than doubled to 12,500 rand by 2017, while producers offered increases of as much as 10 percent. Lonmin said today its finances were sound.

“The union has been looking at Lonmin as the weakest link for quite some time,” Albert Minassian, an analyst at Investec in Cape Town, said by phone. “It can survive, but if you’re not producing you’re not a going concern anymore.”

Talks between the companies and the union brokered by Mineral Resources Minister Ngoako Ramatlhodi continued today, Mahlodi Muofhe, a spokesman for the minister, said by phone.

Closing Mines

Lonmin will continue mediation started by the labor court tomorrow, postponing an application by the AMCU to prevent the companies from conducting employee surveys, according to a statement by the producers. Judgment has been reserved until June 2 for the AMCU’s applications against Impala and Amplats, as Anglo American Platinum is known.

Lonmin “just can’t carry on indefinitely,” Carole Ferguson, an analyst at SP Angel Corporate Finance LLP, a broker and adviser in London, said yesterday by phone. “They might have to close some of their operations.”

Lonmin, in which Glencore Plc holds a 24.5 percent stake, raised $817 million by selling stock to shareholders in 2012 after operations were shut for six weeks because of a violent strike that claimed the lives of at least 44 people, including 34 killed by police in one day near the company’s Marikana mines.

While Amplats and Impala are still able to refuse the AMCU’s demand as they still have mines operating elsewhere, Lonmin’s position is different, said Ben Davis, an analyst at Liberum Capital Ltd. in London.

Rights Issue

“It could mean another rights issue if the situation is still ongoing in three months’ time,” he said by phone May 27. The company will probably first approach banks for further funding arrangements, Davis said.

Lonmin fell 2.3 percent to 256.90 pence by the close in London, extending losses since the start of the strike to 20 percent. Amplats has gained 2 percent while Impala has declined 13 percent in the period.

The spot price of platinum, used to make jewelry and pollution-control devices in vehicles, fell 0.9 percent to $1,447 an ounce in London by 5:34 p.m., for a decrease of 0.8 percent since Jan. 23.

“I think they’re really going to struggle” to sell shares, Ferguson said of a potential rights offer by Lonmin.

Lonmin on May 14 started preparing to resume mining in a bid to break the strike as the company and police increased security measures for non-striking workers wanting to return.

‘Severely Affected’

It remained “severely affected” by the stoppage with attendance of less than 20 percent today, according to a website run by the three producers.

“Attempts to circumvent AMCU and encourage workers to return to duty have failed,” Sibonginkosi Nyanga, an analyst at Johannesburg-based Imara SP Reid Ltd., said in a May 27 e-mailed note. “The group’s balance sheet has been eroded despite management having moved in to limit the cash outflow.”

Lonmin’s balance sheet remained “strong,” Sue Vey, a spokeswoman for the company, said today by phone. It had net cash of $71 million at March 31, from $201 million six months earlier, and available committed debt facilities of $589 million, according to the company’s May 12 report for the first half. Platinum inventories equaled $351 million, Vey said.

Lonmin will step up efforts to preserve cash should the attempted ramp-up fail to materialize in June, Chief Executive Officer Ben Magara said on May 12.

It “may include a restructuring plan” and will “impact our ability to quickly ramp up when operations eventually resume,” he said.

--With assistance from Paul Burkhardt in Johannesburg.