[miningmx.com] – LONMIN shares plunged more than 40% dropping to as low as 194 cents/share in trading in Johannesburg Tuesday as investors “voted with their feet” and rejected the proposed rights offer announced on Monday which was pitched at a 94% discount.
That huge discount was viewed by some analysts as a corporate strategy aimed at forcing shareholders to follow their rights or have their investment in Lonmin almost completely diluted.
It’s not working because it seems many investors have finally decided to cut their losses and sell out after already losing more than 90% of the value of their shares over the past 12 months as the stock fell from R35 to 374c – the last closing price on November 6 before the rights offer was announced.
Those investors still wanting exposure to platinum can invest what’s left of their former Lonmin stake in other shares judged better placed than Lonmin to cope with the current grim platinum market conditions.
A more radical approach is being recommended by CIBC World Markets which is for shareholders to “go for broke” and vote down the proposed rights issue at the general meeting to be held on November 19. The aim is to put pressure on Lonmin’s banks to cut the group more slack on its debt.
In a published research report, analysts Leon Esterhuizen, Arnold Van Graan and Ben McEwen comment: “We don’t like that investors are being basically forced into this deal or threatened with total loss. Debt holders will be highly unlikely to shut the company and place 36,000 people on the street.
“From a shareholder perspective, it might be worth pushing the banks to roll over on the current debt, even at higher interest charges (much better than the current dilution) – delivering the same bottom-line benefit…..buying time!”
The analysts added: “We foresee good upside if prices improve but, given the massive initial losses to first reach that base, we believe it may be worth calling the bluff of the debt holders. We would vote against the issue.”
“We believe it is worth pushing for an alternative deal. In doing so, that should also prompt the necessary shake-up of a management team that has not been doing what it is paid to do – reduce risk and not just at the cost of the shareholders.
“Nobody believes debt holders should get nothing so a revised debt deal that sees the debt being rolled at a much higher interest rate is a very likely outcome if the shareholders vote this issue down and call for another deal to be worked out, in our view.”
