LONMIN, the world’s third-largest platinum producer, is trying to stave off a recall of a $700m debt facility from a consortium of foreign banks as its profit-to-debt ratios reach critical levels, says its acting CEO, Simon Scott.
Production at the company’s Marikana mine ground to a halt after more than 3,000 workers embarked on an illegal strike, at a cost of 45,000 ounces of platinum. Since the strike began three weeks ago, 44 people have been killed by the strikers and police.
Only 8% of the 28,000 workforce reported for duty on Tuesday. All the parties involved in the strike are meeting on Wednesday to thrash out a peace accord.
Lonmin has debt facilities of $950m, of which an equivalent of $250m is in rand backed by three major local banks.
The balance of $700m is a syndicated dollar facility provided by seven international banks, including BNP Paribas, Citigroup Global Markets, HSBC and JPMorgan.
Because of the production stoppage, Lonmin was forced to warn the market that it may breach debt-to-profit covenants due to be assessed next month.
"We are in discussions with all the banks involved in the $950m facility and we’re keeping them all well informed. The possible breach relates to the $700m syndicated facility," Mr Scott said.
"The sooner these disruptions are resolved and the sooner the workers get back to work, the more constructive those discussions will be," he said on Tuesday.
If the covenants are breached, the banks can call for the debt to be repaid. At the end of March, the company’s net debt was $356m.
"What we are doing is being proactive and highlighting that when these covenants are measured, there may be a breach," Mr Scott said.
"We don’t see an overall problem with the level of debt. What we don’t want is for our debt to become callable because we’ve breached the covenants. That’s why we’re having a discussion with the banks so that those facilities are available through the cycle.
"It’s not a liquidity issue, it’s just to keep the funding structure in place so it’s not interrupted by what’s happened in recent weeks," he said.
Lonmin has raised the prospect of issuing shares to raise capital, but Mr Scott said this was only one of a number of options and nothing had been finalised. Deutsche Bank has said Lonmin could raise $700m.
Platinum miners have raised the prospect of negotiating with unions on a collective basis via the Chamber of Mines. "If that helps to resolve the issues we’ve had, we’ll be part of that discussion. It may help in some aspects, but it’s not a complete solution for all the problems," Mr Scott said.
Elize Strydom, industrial relations adviser to the chamber, said the benefit of collective bargaining was that the unions could not play companies off against each other. If the companies stood together, they could be in a much stronger position than negotiating alone.
Asked if the recent fall in Lonmin’s share price had made it a takeover target, Mr Scott said: "Nothing has come to my attention regarding that."
South Africa, as the world’s major platinum supplier, had to stabilise production, and resolve labour issues and soaring input costs to ensure a steady source to the market.
"As a country, it’s really important for us to re-establish ourselves as a reliable source of supply so that we don’t see everybody looking for opportunities to increase supply from recycling or ways to substitute away from platinum," Mr Scott said.