Lonmin Plc:Jumble sale

Lonmin looks to raise cash and/or defer capex through sale and/or JV of assets

    Lonmin intends to sell processing capacity of up to 500koz p.a. (plat), worth up toc.R7.5bn (DBe, at spot). Sibanye, a logical purchaser, has PoC & toll agreementswith Amplats which run until 2020 or 2026. We do not know how tightly lockedin is Sibanye; plus the industry has ample spare capacity. We think it unlikelythat this announcement would be made if logical buyers had shown significantinterest. Lonmin also announced it could monetise other assets through sales;introducing joint-venture partners &/or funding partners; plus is targeting at leastR500m p.a. overhead cost-savings by end FY2018. We view this as a neutralupdate: these are further options to release cash, but without clear buyers/fundersthis reads as a wish-list. The update also supports our view that the business isnot sustainable at spot in its current form. We make no forecast changes. Sell,GBp53ps (unch.)JV or funding sought for capital projects: Akanani, Limpopo, K4, MK2

    In addition, Lonmin will consider selling or entering into JVs on Akani, Limpopo;and introducing funding partners into K4, MK2 (Rowland shaft) projects. This iswhere capex is next required and where partners/funding would have the greatestpositive impact on near-term cash flows.

    Sale of downstream processing capacity, R7.5bn rough valuation

    Using 500kozpa (platinum), marginal revenue benefit of +15% and an allocationof costs, we get to a benefit for a purchaser of R830m p.a. (after 28% tax). At aWACC of 11%, this is worth c.R7.5bn (assuming into perpetuity). Sibanye is themost logical purchaser for this downstream capacity as it produces just under500kozpa of platinum in concentrate from its newly acquired and contiguousRustenburg platinum operations. However, Sibanye has a POC agreement in placewith Amplats until the end of 2018 and thereafter a tolling agreement to run frombeginning of 2019 for a further 2-8 years. It is not public information under whichcircumstances Sibanye may cancel the contract(s). The industry has significantspare downstream capacity and Lonmin will likely compete in selling processingcapacity; which could reduce any price received, in our view.