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Lonmin's crucial $400 million rights issue undersubscribed

Published 11/12/2015, 10:48
Updated 11/12/2015, 10:50
© Reuters.  Lonmin's crucial $400 million rights issue undersubscribed

By Olivia Kumwenda-Mtambo

JOHANNESBURG (Reuters) - Platinum producer Lonmin 's (L:LMI) deeply discounted $400 million rights (£264 million) issue was undersubscribed, with only about 71 percent of the shares on offer taken up, showing that investors are losing faith in the beleaguered mining sector.

Lonmin , seeking cash to stay afloat, said on Friday it had received acceptances for 19.2 billion new shares as of Dec. 10 out of 27 billion shares it was selling to shareholders.

The shares were priced at just 1 pence each on Nov. 9, a 94 percent discount to the stock's previous session closing price of 16.25 pence on the London Stock Exchange.

"The lacklustre support for Lonmin indicates a possible market apathy for PGM (platinum group metal) stocks in what remains a challenging market," BMO Capital Markets analysts said in a note.

The rights issue was underwritten by HSBC, J.P. Morgan Cazenove and Standard Bank. Lonmin said they now need to find subscribers for the balance of nearly 8 billion new shares by Monday or take up the remaining shares themselves.

Bruised by strikes, rising costs, a weak platinum price and slowing demand for the metal, South Africa-focused Lonmin (J:LONJ) also said it planned to raise another $370 million in loans to refinance debt currently due in May 2016.

Lonmin shares have fallen 95 percent this year as the market remained unconvinced it can be a viable business with labour costs still high and platinum stuck at multi-year lows.

The shares were down 7.28 percent to 0.95 pence as of 1013 GMT.

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The pain is being share by rivals such as Impala Platinum (J:IMPJ) and Anglo American Platinum (Amplats) (J:AMSJ), which sold its labour-intensive South African Rustenburg mine as it battles low prices.

Amplats' parent company, Anglo American (L:AAL), is planning to shut or sell dozens of loss-making mines, highlighting the scale of the fallout from the commodities slide.

Platinum <XPT=> is trading at levels last seen in 2008, hobbled by slowing demand in top consumer China.

"Current PGM prices suggest that high cost shafts needs to be suspended across all producers," BMO analysts said.

Lonmin's shareholders approved the share issue last month after the company warned that if it couldn't raise the cash, shares could be suspended.

A Lonmin spokesman said South Africa's Public Investment Corporation (PIC), which owns about 7 percent of the company, took up its full entitlement.

The PIC had also sub-underwritten a material portion of the issue, over and above its entitlement, but the miner's spokesman said the company would not comment further.

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