January 22, 2018 / 7:25 AM / 4 months ago

Impairment drives Lonmin deeper into loss ahead of takeover

LONDON (Reuters) - South African miner Lonmin (LMI.L) announced a $1.1 billion impairment charge on Monday due to weaker platinum prices and a firmer rand, plunging it deeper into operating losses ahead of its planned takeover by rival Sibanye-Stillwater (SGLJ.J).

FILE PHOTO: Workers are seen at a hostel next to Lonmin's Karee mine, outside Rustenburg, northwest of Johannesburg July 29, 2015. REUTERS/Siphiwe Sibeko/File Photo

Sibanye agreed in December to buy Lonmin for about $382 million (274.80 million pounds) to create the world’s second-biggest platinum producer to try to ride out depressed prices for the metal. It said it planned to cut a third of Lonmin jobs.

Sibanye spokesman James Wellsted said on Monday that Lonmin’s results did not change the takeover deal, as Lonmin’s assets remained the same and its resources intact.

Platinum XPT= has tumbled in value because of bloated supply and falling demand from the automotive industry, where the metal is used in technology to cut vehicle emissions. Lonmin has also suffered because of high costs and labour unrest.

Lonmin shares lost nearly a third of their value in one session in November after it announced a delay to its annual results while it conducted an operational review.

FILE PHOTO: A mine worker returns from the Lonmin mine at the end of his shift, outside Rustenburg October 5, 2015. REUTERS/Siphiwe Sibeko/File Photo

Giving an update on that review on Monday, Lonmin kept its spending, sales and production targets for 2018, but said it was taking a $1.1 billion impairment charge due in part to changes about its assumptions for currencies and prices - with both dollar/rand and platinum prices seen weaker.

A stronger rand is negative for South African miners as most of their costs are in rand while platinum is priced in dollars.

“The main drivers of the impairment is our assumptions into the future which have to do with prices,” Lonmin Chief Executive Ben Magara said on a results call. Platinum prices are trading at less than half of their peak in 2008.

    The impairment resulted in Lonmin breaching its loan agreements with its banks. However, the company said last week it had secured a second waiver from its lenders.

    Earnings before interest, taxes, depreciation and amortisation (EBITDA) fell to $40 million for the year ended Sept. 30 from $115 million a year earlier. The operating loss reached $1.1 billion from $322 million a year earlier.

    Lonmin’s London-listed shares were down 0.9 percent to 85.65 pence at 1045 GMT.

    “The important thing is that there is nothing in the announcements that appears to be an impediment to the proposed transaction with Sibanye going through,” said BMO Capital Markets analyst Edward Sterck.

    The merger is set to close in the second half of the year, Lonmin said, pending approval from competition authorities and the two company boards.

    In the first quarter of its new financial year, Lonmin said its refined production rose 17.7 percent to 161,363 platinum ounces from a year earlier, while sales also increased.

    Net cash was $103 million at the end of September, down 40 percent on a year earlier, and fell further to $63 million at the end of December, Lonmin said.

    Editing by Louise Heavens and Mark Potter

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