* Set to detail terms of rights issue on Friday
* Lifeline key to cutting debt, financing growth
* Lonmin expected to post pre-tax loss for year
LONDON, Nov 8 South African miner Lonmin
is set to price its rights issue on Friday to raise up to $800
million from investors to help cut debt and finance its recovery
after six weeks of deadly strikes at its platinum mines.
The company is also due to report its results for the year
ended Sept. 30 but will not yet be able to answer the question
of whether Xstrata, its top shareholder, will sign up to
the rights issue, which is fully underwritten.
Xstrata, which is still in the throes of being taken over by
its own largest shareholder Glencore, is still
considering its position and whether it will invest to maintain
its 25 percent holding in Lonmin which it was left with after a
failed takeover attempt four years ago.
Glencore has little appetite for platinum, sources familiar
with the matter have said, and prices are far off their 2008
"Nothing has been said yet. (Xstrata) have always played
their cards very close to their chest," said one source familiar
with the situation.
"Xstrata have got other situations going on in the
background, which may or may not influence their involvement."
Lonmin said last month it needed the rights issue
to restructure a balance sheet that is one of the most stretched
in the sector, thanks to cost inflation, cooling demand for
platinum and mining stoppages due to safety issues - all factors
which obtained even before the crippling strikes that caused it
to lose 110,000 ounces of platinum output.
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 has scaled back long-term plans to boost annual
production to over 900,000 ounces, requiring it to raise less
new money than some analysts had initially forecast.
Sources familiar with the situation said the discount at
which the new shares will be sold - being hammered out by
Lonmin's bankers in last-minute talks - was expected to be in
line with other rights issues aimed at repairing balance sheets,
discounted between 35 and 45 percent.
The shares are already down more than 50 percent so far this
year, making them the second-worst performer in the sector.
Shareholders will vote on the rights issue and terms on Nov.
19, with the issue itself to follow two to three weeks later.
Without the rights issue Lonmin would have seen a revised
debt agreement scrapped and would likely breach key covenants as
the new debt agreement is conditional on Lonmin raising at least
$700 million by the end of the year.
"Lonmin needs this money to 'stay in the game'. Current and
prospective shareholders will have to chip in at least half the
value of their existing holdings to allow their investment to
remain viable," CIBC analysts said in a note.
"To get payback on this will require a metal price basket
increase of at least 25 percent by our estimates."
Lonmin is expected by analysts to report a loss before tax
of $18.5 million for the year ended Sept. 30, according to
Thomson Reuters I/B/E/S Estimates, which compares with a $315
million profit in the previous year.