Further obstacles await Lonmin after fatal feud

MINING COMPANY Lonmin will have to contend with more labour disputes, lower profit and loan revisions long after the current feud in which 34 striking miners were killed by South African police on Thursday, said Société Générale.

“We fear that the situation will get even worse,” said SocGen analysts in a note to clients yesterday.

“If spot commodity prices prevail in perpetuity, we see 178 per cent downside risk” to 2013 earnings-per-share estimates and a possible breach of debt covenants, it said.

South African platinum producers, which account for about three-quarters of global supply, have been struggling with above-inflation power and labour-cost increases as the price of the metal falls amid a supply surplus.

Earlier this year, fighting between union members at an Impala Platinum Holdings Ltd mining complex led to four fatalities and the closure of the world’s biggest platinum mine for six weeks. Before Thursday’s violence, the six-day work stoppage had led to the deaths of 10 people.

Lonmin has debt facilities totalling $945 million (€767 million), including $700 million of five-year loans provided by seven banks in May 2011, it said in its 2011 annual report. The dollar loans are subject to covenants including a maximum ratio of net debt to earnings before interest, tax, depreciation and amortisation (Ebitda) of four times, and a minimum Ebitda to net interest ratio of 3½ times.

“Second-half profitability will be under pressure and the risk of a debt-covenant breach increases with each day of lost output,” Andrew Byrne and Tlholo Kgaphola, analysts at Absa Capital, a unit of Barclays’ Absa Group Ltd, wrote in a note yesterday.

Platinum climbed to a six-week high in London, rising 1.8 per cent to $1,466.72 an ounce by 4:52pm, and paring its drop in the past 12 months to 20 per cent.

Lonmin, the third-biggest platinum producer, declined for a fifth day, losing 1.3 per cent to 639½p by the close in London, the lowest since December 2008.

Marikana produced 96 per cent of Lonmin’s platinum group metals in concentrate last year. With each day of strike action, the company is losing about 2,500 ounces of platinum, used in jewellery and auto catalysts and an estimated $3 million. – (Bloomberg)