Lonmin/Sibanye merger judgment set for Friday

Lonmin-Sibanye merger seen as a perfect job-saving fit.

Lonmin-Sibanye merger seen as a perfect job-saving fit.

Photo by Creamer Media

10th May 2019

By: Martin Creamer

Creamer Media Editor


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JOHANNESBURG ( – The Competition Appeal Court (CAC) judgment on the merging of Lonmin with Sibanye-Stillwater is expected to be handed down in the Cape High Court on May 17 at 10h00, Mining Weekly Online can today report.

The appeal against the merger was brought by the Association of Mineworkers and Construction Union (AMCU).

Lonmin CEO Ben Magara said he was not in a position to comment on whether or not the judgment would be handed down next Friday as Lonmin had not been officially informed of this, but from Lonmin’s of view, final merger approval could not come too soon, as the delay was creating anxiety and low morale within the company’s ranks.

In Friday’s presentation of company results, Magara, in fact, attributed Lonmin’s lower half-year production to the extended timeline the AMCU appeal had placed on the merging of the London- and Johannesburg-listed company with Sibanye.

“I sincerely hope that the CAC decision is imminent so that clarity can be provided for a business of our size,” said Magara.

In reporting a 4%-reduced workforce to 29 812, Lonmin reiterated its conviction that the all-share transaction with Sibanye remained the best way forward to avoid more job losses, as the company was battling a lack of working capital and continuing exposure to volatile currency and metals markets.

Sibanye is poised to acquire the entire issued and to-be-issued ordinary share capital of Lonmin, on the basis of one new Sibanye-Stillwater share for each Lonmin share.

When the Competition Tribunal approved the merger last year, it imposed a six-month moratorium on retrenchments. Since then, Lonmin has been operating at razor-thin profit, with Magara once describing the company’s tough passage as being like “trying to push water uphill”.

But driven by higher platinum group metals (PGMs) prices and a weaker rand-dollar exchange rate, operating profit for the first six months of the company’s financial year to March 31 was $70-million, compared with an operating loss of $32-million in the corresponding period of last year.

Earnings before interest, taxes and depreciation were $78-million, compared with a loss of $26-million, and net cash was $71-million, compared with $17-million last year.

But the 25.9%-higher rand basket price of R16 268/oz was hit by a 15.5%-higher unit cost of R14 994/PGM ounce, on the back of the reduced mining output, lower grades and a poorer recovery rate, and the company has been forced to hold back on essential stay-in-business capital expenditure.

“Thank God, we still have very good immediately available ore reserves for our flexibility. We’re continuing to prioritise issues of safety and compliance but we should be spending more capital than we’re able to do now,” he told Mining Weekly Online.

Separate circulars have gone out to shareholders informing them of a merger sanctioning meeting on May 28, which will be followed by shareholder meetings in England and Wales for the delisting of Lonmin and for the merger to be effected on June 7 ahead of final June 30 closure date.

“There is great business and commercial rationality for this merger, which is in the public interest,” Magara reiterated.

The merger will enable the merged company to reduce downstream costs significantly by making use of prime but under-used Lonmin PGMs processing infrastructure.

Synergies are obvious owing to abutting mine boundaries and the opportunities to diversity Lonmin speak for themselves.

“Approval by the Competition Tribunal has already been achieved that the appeal is simply what AMCU put forward and therefore whatever AMCU is seeking as relief,” he said.

Both Lonmin and Sibanye fully supported the retrenchment condition imposed by the tribunal and PGM prices being better and the rand-dollar exchange rate being weaker makes the transaction more doable.

With the improved prices the synergies to be unlocked could well exceed the previous estimated of R1.5-billion in savings.

Lonmin mines at shallower depth to most of its peers in the platinum mining industry and also mines more upper group two (UG2) ore, which is currently sought after owing to the high rhodium and palladium prices.

It also employs the up-dip and down-dip mining method, which is regarded as safer and lower cost. Its four main Lonmin shafts of Saffy, E3, Roland and K3 are mining at high shaft hoisting capacity utilisation levels.

The company has also been decisive in reducing its Generation 1 shafts to make sure it maximises the Generation 2 shafts, which operate at lower cost and are scalable with long lives.

It also has high concentrator and refining recoveries.

“We really have a unique portfolio of fantastic assets,” Magara enthused.

Lonmin’s current enforced strategy of minimising capital expenditure is making it increasingly difficult to maintain its production profile and keep shafts open.

Half-year mining production was 7.7% down at 4.3-million tonnes and total metals-in-concentrate platinum production was 10.3% down at 276 020 oz.

The $200-million Pangaea forward metal sale agreement will be amortised by October 2021. The new financial facility has improved Lonmin’s short-term liquidity and removed restrictive conditions contained in the previous debt facilities but it does not offer the ability to avoid retrenchments and shaft closures should the merger with Sibanye not be allowed to go ahead.

The first-half production setback means that Lonmin expects to achieve platinum sales at the lower end of its 640 000 oz and 670 000 oz guidance range.

Edited by Creamer Media Reporter


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