Lonmin surges as lenders waive some debt covenants

Lonmin shares surged on Friday after the company said its lenders have agreed to waive some of its debt covenants, giving the miner some breathing space and allowing it to buy the rest of its Pandora joint venture mine.

The company, which is struggling against a backdrop of low platinum prices, has obtained a pre-emptive waiver of its consolidated tangible net worth covenants for the period from 30 September 2017 to end of March 2018.

As a condition to the waiver, Lonmin has also agreed with its lending banks to cancel a debt facility and to leave undrawn approximately $200m of remaining revolving credit facilities during the waiver period.

"The group's liquidity is expected to be adequate for the waiver period, taking into account the company's past working capital requirements, particularly during the first quarter of the financial year, with the continued support of the lending banks and absent any material unforeseen adverse events."

Lonmin also announced the consent of its bank for its acquisition of the Pandora JV, the completion of which will allow it to extend mining at its Saffy shaft without having to spend 2.6bn rand, 1.6bn of which would have been required over the next four years.

It also said that its net cash position had improved to $100m in the fourth quarter from $86m at the end of the third.

In addition, the group expects sales to be slightly above guidance for the financial year 2017 and confirmed unit cost and capex guidance.

RBC Capital Markets analyst Richard Hatch said: "All eyes had been on Lonmin’s balance sheet and covenant tests (particularly around the tangible net worth covenants) as we moved into the company’s fiscal year end of September. Today's announcement should be viewed by the market as positive.

"Long term, we continue to view the company’s fundamentals as challenged given its labour-intensive mining methods which, in our view, will drive sustained cost and margin pressure (labour is around 50% of opex) given inflationary labour increases of around 8% a year. That said, we think near-term relaxation of balance sheet pressure should see the shares move higher today."

At 1035 BST, the shares were up 15% to 85.10p.