Lonmin launches rights issue at 94% discount as losses widen

Shareholders will be able to subscribe for 46 new shares for each Lonmin share they own at 1p per share.

Lonmin had already warned that the shares would be issued at a “significant discount” and the company said on Monday that its lenders would not refinance its debt unless the rights issue was approved.

Chief executive officer Ben Magara said: “I am pleased that we have secured $370 million of bank facilities from all 10 of our existing lending banks which is conditional on the $407 million rights issue.

“It is encouraging that our rights issue has been fully underwritten and we hope shareholders vote positively on 19 November 2015.”

At 1050 GMT, shares in the miner were up 11.8% at 18.17p.

RBC Capital Markets, which attributed the surge in the share price to relief, said the discount was deeper than it had expected but not overly surprising given the challenging spot the company finds itself in.

Also on Monday, Lonmin reported $2bn in operating losses for the year to the end of September compared with $255m a year ago. This incuded $1.8bn in asset impairments on the back of lower-than-expected production and prices.

The pre-tax loss for the full year widened to $2.2bn from $326m the previous year and net debt increased to $185m at the end of September from $29m in the same period in 2014.

CEO Magara said: "2015 has been a tough year for Lonmin given the adverse pricing environment and the imminent maturity of our debt facilities in mid 2016.

“Our priority is to run the business with a focus on cash generation and profitable ounces. We are repositioning Lonmin and aiming for the business to generate positive free cash flow after capital expenditure in this current low environment.”

Taking what he admitted was a "somewhat unscientific look" at share consolidations by other companies, analyst Chris Beauchamp at IG suggested Lonmin's hopes were not hugely improved by the move.

Six months after their own consolidation in June 2014, Rexam's shares were down 15%; six months after a November 2014 consolidation Johnston Press was down 16%; after its reverse share split in June 2014 RBS was down 40% a half-year later; after its own in 2012, Premier Foods was down 27%; and following its reshuffle in February last year IMI's shares fell 12% by August.

"It’s not exhaustive, but rather instructive that Lonmin might not be saved," Beauchamp said.