Lonmin Share Discussion Threads

[dealy] 04/11/2017 19:17

Let's not forget this a billion dollar revenue business with net cash and at least 500m of useful assets. Its not a micro cap

[kirk 6] 04/11/2017 16:45

This will be on the top of the leaderboard Monday

[dealy] 04/11/2017 15:14

The pay rise is below inflation. The Rand depreciates anyway

[careful] 04/11/2017 15:08

It was obvious in retrospect that these covenants would be breached.
Why the bank loans should be linked to such volatile assets is a puzzle.
breaching could easily be arranged if so desired.
Who can guess impairments anyway. Tesco suddenly wrote of £7bn of assets after Dave Lewis took over the CEO role.
And anyhow, even if facilities were extended,being able to burn cash and use up facilities is just delaying the inevitable and encouraging yet more sloppiness.

What really matters is cash flow, investment and profit.
It seems now that we shareholders were suckered yet again, for the forth time, to subsidise LMI's ineptitude.

Ben Magara talked a good game about efficiencies, but the overheads and headcount are no where near where they should be.
All we have done is to make a charitable donation that subsides the overstaffing of this company.
Too many people employed and a generous 7% pay rise last year was paid for by the rights issue.

[dealy] 04/11/2017 15:03

Another difference between now and 2015 is that a merger with a peer can be undertaken. This is a kind of enhanced liquidation. All things considered I see no cause for panic

[dealy] 04/11/2017 15:00

LW, a liquidation would probably generate at least 200m which is about where the shares are currently valued. Operating would be pointless if it could not generate value or if it could not be financed. Ironically that would push pgm prices higher.The shareholders made the decision 2 years ago to put in 400m so that the company could operate and produce sustainable profits / cash flows. Time will tell if that was the right decision and will ultimately be asked again if banking facilities are pulled. I think 2 years ago a liquidation would not have produced anything for equity holders because of the net debt situation

[dealy] 04/11/2017 14:46

Looked back at some other RNS'S re the TNW covenant. Already back in March the company warned that they have no control of how these assets are valued (impaired). So that it might have dipped below the threshold probably shouldn't be a surprise. But it is cause for concern. Waivers are in place though on this covenant until March 2018 (although laths a result some unused facilities are not available ). If these unused facilities are not going to be needed then it might not matter so much. I don't think going deeper into debt is in shareholders interest anyway

[lw425] 04/11/2017 14:26

As the company as of right now have net cash what should happen is that LMI simply cease trading NOW. Close the mines. Sack all workers with immediate effect on zero pay. Sell off all mined metals and other assets.

Return cash to shareholders.

It's the only way large holders will see anything at all.

PI's can get out on the opening bell.

[khoo] 04/11/2017 14:26

Common sense should prevail their is no need for foul language.

[khoo] 04/11/2017 14:24

Common sense should prevail their is no need for foul language.

[elvisrocks] 04/11/2017 14:15

The difference between a month ago and now is that LMI got finality on what the impairment would be, and was agreed at, being a further $400m write down. That number has been thrashed out, and now the covenant has been breached, it is all hands to the pump. It cannot wait until March 2018. LMI has to force the issue and negotiate on these terms, otherwise the market will see an announcement that Lonmin is not a going concern, bankers own the company, facilities withdrawn and volia, a 10-20p share price surfaces (by the way LMI's bank facility is with a syndicate of 10-12 SA and international banks so not much choice left, they went touting for bankers two years ago). A 5% variance on these covenant tests has a $300m impact, another four quarters and net worth goes to zero. Who is to say that won't happen, production hiccups, Pt doesn't recover, high cost of capital / discount rate in the numbers. Yes, can go the other way too but there is nothing on the horizon that it will. I can see 50p region this coming week.

[careful] 04/11/2017 13:05

This non cash impairment that brings the net assets down thus breaking covenant rules seems odd.
I think the really important thing here is the pressing need to restructure again is now obvious to everyone.
LMI admit that at present PMG prices profits are wafer thin, and next year they will be losing money.

The drastic announcement yesterday that caused the share price to collapse, may be needed to convince the 'stakeholders' including unions, that significant action is required.

As the above note says, shareholders have invested over $1bn in rights issues in recent years, only to see the value of the company they own collapse.
Feel sorry for those old colonial types who have watched the share price collapse from £126 in 2009.

[dealy] 04/11/2017 13:02

Thanks for the correction. What's surprising is that market was pleased with events on October 6th (banks supportive of Pandora deal) but one month later fears insolvency. Don't quite get that as no new negative events have occurred in the meantime

[ravenna23] 04/11/2017 12:56

Covenants not covenance. Why should anyone listen to individuals that cannot spell?

[elvisrocks] 04/11/2017 12:48

dealy, even if they find a fix to the covenance test, and even if new banks join in the mix or replace / part replace the others, Lonmin is still faced with asset disposals as a way of convincing those bankers of is new Business Plan. And guess what? Buyers of those disposals are negotiators too, so it is a case of backs against the wall with the buyers wanting it - the best assets - at their price.

[dealy] 04/11/2017 12:48

Also don't understand why they agreed to such tight covenance on tangible net worth. Hardly any buffer in place. Assuming that the banks will be reasonable I expect that they will reduce the size of the facility until the tangible net worth has regained the 1.1 billion level. That should not prevent the company from being a going concern. I truly hope lonmin are shopping for another lender as a back up

[dealy] 04/11/2017 12:37

Thanks for posting that article. I think "precarious " is a word that could be used if the last 2 quarters had been dismal with uncontrolled cash burn. This is however not the case. They are facing the same covenance test that they flagged several months ago. It's not like they just discovered some gigantic hole in the business. I think it's reasonable to assume they will not have funding pulled for a non cash write down. Surely there are alternative banks being briefed as back up

[mj19] 04/11/2017 12:26

Good luck I got stopped out. They look screwed for nowLonmin's solvency back in the mixer as embarks on shaft reviewBy David McKay - November 3, 2017 0 191 Ben Magara, CEO, LonminTHE solvency of Lonmin has again been cast into the crucible after a non-cash impairment took the value of the business to $1.1bn – the minimum required by lenders who recently waived two covenant tests provided it left $200m in debt undrawn.The upshot is that were the business value to fall below $1.1bn, lenders may call in loans which would lead to a funding crisis – a day of reckoning the group today said called for its "undivided attention".In response to this risk, the group has gradually this year added more fundamental restructuring plans to its previous strategy to "pulling operational levers" to reduce costs. These include selling rights to its processing facilities, and shutting down unprofitable sections of its Rustenburg facilities.So complex is this incomplete process, especially as it impacts the potential size of the impairment – which relates to the carrying value of the company – that it has delayed its full-year financial results announcement until it has clarity. The results were scheduled to take place on November 13.As part of its cogitations, Lonmin could not rule out the possibility of having to refinance the business. Lonmin has raised $1.1bn in shareholder funds over the last five years in order to pay for capital expenditure and stay afloat.This news has masked an otherwise strong fourth quarter performance where CEO, Ben Magara's hands-on approach to shaft operations is beginning to take hold.Platinum sales of 706,030 ounces for the financial year ended-September was in excess of the 650,000 to 680,000 oz guided, although 4% lower than last year's number of 737,747 oz. Despite a shaky start in the first quarter, many of Lonmin's key operations recovered well. Tonnes mined at its Generation 2 shafts – K2, Saffy and Rowland – were all higher. On an annual basis, total tonnes mined was 8.2 million tonnes compared to 8.1 million tonnes.But there were significant weaknesses too. The older, Generation 1 shafts creaked in parts while a Generation 2 shaft – the 4B produced 18% less tonnes in the quarter which Lonmin described as lacklustre. As it wasn't possible to allocate capital to the shaft ahead of its rival Generation 2 assets, 4B would be reclassified as a Generation 1 shaft which are not considered long-life or priority assets in terms of capital allocation.However, Hossy shaft which was due to be closed at the end of year under review will be kept open for a further year depending on its performance. And the E3 shaft, by dint of the synergistic benefits it received from Lonmin's acquisition of Anglo American Platinum's shares in the Pandora Joint Venture, will be reclassified as a Generation 2 shaft as its ability to compete for capital improves.It is also considering introducing funding partners for MK2 which, if developed, will extend the life of the Rowland shaft. This is an indication of the capital demands which Lonmin is juggling. Funding MK2 in such a way that it doesn't tax the group's balance sheet too greatly is a key focus of the operational review.Another shaft, E2, would be put on care and maintenance in the first quarter of 2018 as Lonmin sought to separate the wheat from the chaff. Last month, Lonmin announced that some 1,000 jobs were at risk. Lonmin spokeswoman, Wendy Tlou, said the figure included contractors while up to 446 jobs permanent employees would be affected.Lonmin cut about 6,860 jobs in its 2016 financial year taking down its full staff numbers to just over 33,000 souls. Then several months later it cut into its production target of about 700,000 ounces to about 650,000 to 680,000 oz for the 2017 financial year.For the 2018 financial year, Lonmin guided to platinum sales of 650,000 to 680,000 oz while unit costs would remain under pressure at between R12,000 to R12,500 per PGM oz. However, capital expenditure would be increased from the R1.34bn in the year under review to 1.4bn to R1.5bn for each of the 2018, 2019 and 2020 financial years.From a liquidity perspective, net cash improved again in the fourth quarter to $103m from the $86m in the June quarter and $75m net cash in the quarter before that. But Lonmin's position remains precarious."The objective of the operational review is to achieve a properly funded viable business plan based on potential disposal proceeds, new debt capital and the continuing support of existing lenders," said Lonmin. This would "... include obtaining their consents and waivers of any future potential covenant breaches and disposals under the operational review as required by the facilities agreements," the company said in notes to its fourth quarter numbers.

[elvisrocks] 04/11/2017 12:13

dealy, I despair with your last post about use of technology investment, do you not know the relative recent history of Lonmin where they invested - burnt - $1bn of cash/capital investing in under ground mechanisation only a few years ago and found it didn't work, hence why they are so labour intensive. The compares to Anglo's jewel in the crown Mogalakwena open pit, fully mechanised mine.

[carbon man] 04/11/2017 11:10

All this news has been discounted in yesterdays price movements. Again look at the charts, it should not go below 70, possibly only intra-day. I will certainly buy at these levels, only my opinion and my money if it goes wrong.

[dealy] 04/11/2017 10:43

If they generated cash despite these awful labour conditions then there is surely a good business there where technology investment can lead to strong profits. All is not lost. It's a process. Making operational changes as a condition to continued or increased funding makes perfect sense

[dealy] 04/11/2017 10:40

Very good point careful. Some of the wording in this rns and the upcoming review might be aimed at unions etc to get the blessing to cut more jobs

[careful] 04/11/2017 10:26

Randgold has a turnover of about $1,5bn.
it employs 11000 people directly.

Lonmin's shrunken business generates about $1.1bn in revenue.
It employs over 30,000 people directly.
plus contractors

This business could be viable, but the management have been forced to preserve jobs and keep the workforce happy at any cost.
Last years 7% wage rise was un-affordable.
Praying for a collapse in the rand or a surge in PMG prices is not a strategy.

It seems that a potentially sound business is being destroyed by unaffordable labour costs.
This is where the problem lies. But can Ben too anything about it?
He needs a drastic reduction in employees.
Even mighty RIO only employs 50,000 directly.(turnover $35bn)

[dealy] 04/11/2017 10:05

I think it's reasonable to assume that all the hard cost cutting work over the last 2 years has put the company into a at least a break even situation with current depressed prices. Net cash is higher now than after the RI from 2 years ago. The future is therefore in the hands of the commodity pricing. Will the banks feel that providing facilities of between 150m and 250m usd is too risky? Can a state bank or development authority step in if the banks are too nervous? These are the key questions imo