LONDON/JOHANNESBURG, July 30 (Reuters) – Platinum producer Lonmin is facing its deepest crisis to date, hurt by a downturn in the metal and haunted by a mixture of bad luck and debatable management choices that are putting its survival at risk.
Times are tough for everyone in the platinum sector. Producers are squeezed between soaring costs and a rout in platinum prices to lows not seen since the 2008 financial crash.
But Lonmin is bleeding more quickly than the others and its apparently inexorable decline has become evident this year. Its shares dropped this week to their lowest since Jan. 1979. Pre-tax losses last year were $326 million.
Glencore’s decision to sell its 23.9 percent stake earlier this year was the latest blow to Lonmin, whose name is tied to the tragic 2012 Marikana mining strike.
“Glencore’s exit was clearly a no confidence vote on the sector but foremost on a company that is disadvantaged versus the other big players,” said Ingo Hofmaier, director at London-based merchant bank Hannam & Partners.
“The situation is critical. Raising capital now will put pressure on the share price and as the highest-cost of the big producers, Lonmin is the first to feel the pain and the need to restructure.”
At current spot prices, Lonmin is burning cash at a rate of $240 million per year and might end this financial year with a debt of $380 million, according to Deutsche Bank analysts.
Things will get worse if prices don’t recover.
Citi analysts forecast that Lonmin’s net debt/Ebitda, a measure of its leverage, will baloon from 0.73 this financial year to 7.8 the next.
In what is seen by many as a last attempt to buy time, chief executive Ben Magara outlined a plan last week to close cash-burning shafts and cut thousands of jobs in the face of plunging platinum prices, but failed to convince investors on the day.
“Lonmin is defending value for all stakeholders in responding to the platinum pricing crisis by taking swift, decisive even though difficult measures,” Magara said.
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