* To raise $800 million in underwritten rights issue
* Would equate to roughly half current market capitalisation
* Sees price benefit from reduced supply
* Shares trade higher in London, Johannesburg
* Shareholder Xstrata says considering its position
By Clara Ferreira-Marques and Tiisetso Motsoeneng
LONDON/JOHANNESBURG, Oct 30 (Reuters) - South African miner Lonmin, the world's third-largest platinum producer, is to raise $800 million from shareholders to cut debt and finance a recovery after weeks of strikes in which dozens were killed.
It will use the underwritten rights issue to restructure the balance sheet as soon as possible, the company said on Tuesday.
In August, Lonmin's Marikana mine was the scene of South Africa's most violent episode since the end of apartheid, when police shot dead 34 people involved in wildcat stoppages battering the country's already beleaguered platinum industry.
Most of Lonmin's miners have since returned to work, but the producer - which even before the walkouts and illegal strikes had one of the most stretched balance sheets in the platinum sector - said it had lost 110,000 ounces of production and scaled back long-term plans to boost output and sales.
Lonmin said efforts to ramp up activity after weeks of strikes were progressing better than expected, but the return to business as usual would take months and, along with the rebuilding of stocks, would swell its debt in the short term.
That meant it would have breached current loan covenants at the end of March - even if higher-than-expected sales of stockpiled platinum help it meet a test this November; so the miner has turned to investors for a cash boost.
"We believe $800 million is the right quantum to support the plan we have in place," acting chief executive Simon Scott told reporters. "It will put the company in a position where it can reduce its current debt levels and manage the business on a stable platform."
Analysts had speculated that Lonmin could raise as much as $1.5 billion - virtually its current market value - after it warned in August that it could turn to investors for cash.
On Tuesday, Lonmin said it would rein in expansion plans and raise less than half that in gross terms - meaning the number includes fees paid to underwriting banks which are expected to include its advisers JP Morgan and Citigroup. It did not provide full details on the timing or the extent of any discount.
It said in a statement that it planned to restructure its balance sheet at "the earliest possible opportunity".
It did not comment on any commitment from its largest single shareholder, fellow miner Xstrata, which owns a 25 percent stake after a failed takeover attempt.
Xstrata, which is currently in the throes of a takeover by its own largest shareholder, Glencore, said it would consider its position after assessing Lonmin's revised strategy, business plan and "management capability". Xstrata is not expected to remain a shareholder in the long term, but analysts say it could pay up to avoid further writedowns of its stake.
"I want to see what Xstrata does. It would be very interesting to see if it follows its rights - they are more important in this whole process than anybody else," said Sasha Naryshkine, fund manager at Johannesburg-based Vestact.
"Lonmin has to be a meaner, leaner machine after."
Shares in the group were trading up 5.7 percent at 507.50 pence at 1335 GMT in London on the news, while its Johannesburg listed shares were up 5.0 percent.
Lonmin said new debt conditions agreed with its lenders depended on the company raising at least $700 million in new equity capital by the end of the year, and using that to reduce its debt to $400 million from $700 million.
The current conditions, linked to a debt-to-profit ratio, will be replaced by conditions tied to the tangible value of its assets and limits on capital expenditure.
The changes will, though, slow Lonmin's previous plan to increase production to more than 900,000 ounces in 2015 to raise margins and its bottom line, efforts which had been based on development of growth shafts at Marikana - Hossy, Saffy and K4.
It now aims to sell 660,000 ounces in the financial year to the end of September 2013, Lonmin said, targeting sales of over 750,000 ounces in both 2014 and 2015. That would include output from a planned restart in 2014 of the mothballed K4 shaft.
"This is perhaps a less aggressive ramp-up - compared with the $450 million programme before this summer to get K4 up and running sooner rather than later," analyst Tyler Broda at Nomura said, welcoming the capital raising. "This rejigged plan has taken into account the relative balance-sheet strength, and is also an indication of how poor the current end-market is."
The company, which had already warned the strike would cause it to miss targets, said production of platinum in concentrate almost halved in the three months to Sept. 30. Sales for the quarter, though, were down less than 4 percent, thanks to stocks. Over the year, Lonmin sold more than 700,000 ounces.
While the rights issue from Lonmin, will help it address the cost of months of unrest that have threatened growth in Africa's biggest economy, the sector remains beset by difficulties.
Amplats, the world's top platinum producer, is still struggling to get workers at its Rustenburg mines to return to work. Hundreds of miners barricaded a road to one of its mines on Tuesday with burning tyres, while police fired rubber bullets.