Photo by: Duane Daws
JOHANNESBURG (miningweekly.com) – With platinum producer Lonmin hit hardest by the protracted strike in the platinum belt, Liberum’s mining team predicts that the company is headed for its third capital raising in five years.
In a statement to clients on Thursday, Liberum said Lonmin’s attempts to circumvent the Association of Mineworkers and Construction Union (AMCU) and encourage workers to return to duty have failed and the company “continued to burn” $17.3-million a week in cash.
With 100% of operations offline as the AMCU-led strike entered its seventeenth week and strike-related costs reaching about $250-million to date, Lonmin was “hurting the most” out of the three impacted platinum producers.
“Without a critical mass of employees, processing facilities remain offline and the $200-million to $300-million of inventory stockpiles cannot be released,” Liberum said.
Further, restart and ramp-up costs of about $100-million would be needed to get the company back on track.
Significant equity downside persisted in the current situation and the company might need to consider its third capital raise in five years if the strike extends for another three months.
In 2009, the group had raised over $450-million through a rights issue, which was followed by an $800-million rights issue in an attempt to recover from a deadly six-week strike at Marikana mine, in Rustenburg, in 2012.
Further, for Lonmin to even consider the 119% increase wage demands, the platinum price needed to reach $2 405/oz, as opposed to the current price of $1 480/oz, to maintain the company’s already weak profitability margins.
“The platinum producers simply cannot give in to AMCU's current wage demands as the business would not be economic at today's platinum group metals basket price,” Liberum said, adding that even if the companies ceded to AMCU's demands, the proposed wage increase would not offset the losses to employees of one-third of their yearly salaries since the strike started.