Lonmin poised for $1bn fundraising as covenant test looms

Crisis-hit platinum miner Lonmin is gearing up for a $1bn rights issue to repair its ailing balance sheet just days after violence pushed the death toll at its Marikana mine in South Africa to 44.

The company, once part of Tiny Rowland's Lonhro conglomerate, shut Marikana when workers struck over pay and conditions 10 days ago. Riot police opened fire on knife-wielding strikers, sending its shares slumping.

Lonmin was already months away from breaching its banking covenants before the mine closure, according to analysts. A collapse in the price of platinum, because of falling demand from European carmakers, has hit the group's profits. Platinum is used in the manufacture of emissions-reducing catalytic converters.

The company is thought to have consulted with its largest shareholders about the fundraising. It is believed to have won support from Xstrata, the FTSE 100 miner, which has a 25 per cent stake in Lonmin.

In late July, Lonmin assured the market that net debt remained well within the limits of its existing bank debt facilities. Last week it added: "The company continues to monitor the position closely regarding the additional pressure which the current disruption to production may put on its bank debt covenants when they are next tested on 30 September."

Lonmin's chief executive, Ian Farmer, was treated in hospital last week for an unrelated "serious illness". During his absence, the chairman, Roger Phillimore, has taken charge. The company has won a court order ruling the strike illegal and has ordered staff back to work by today.

Lonmin, the world's third-largest platinum miner, has tried to introduce more mechanisation into the mining process, but it has led to higher, not lower, costs, disruptions and a string of fatalities.

Platinum mining takes place in some of the world's deepest mines and involves searching for the smallest veins of ore.

Xstrata's stake dates back to a takeover attempt for Lonmin in 2008. Xstrata recently wrote down the value of its Lonmin stake by $500m.

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