LONDON South African miner Lonmin (LMI.L) 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 September 30 but will not yet be able to answer the question of whether Xstrata XTA.L, 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 (GLEN.L), 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 peak.
"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 (LONJ.J) 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 November 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 September 30, according to Thomson Reuters I/B/E/S Estimates, which compares with a $315 million profit in the previous year.
(Reporting by Clara Ferreira-Marques, Anjuli Davies and Kylie MacLellan in London and David Dolan in Johannesburg; Editing by Greg Mahlich)