Lonmin (LMI), the beleaguered South African miner whose formerly striking workers spread unrest to other mines in the country, almost bringing the platinum industry to its knees, is poised for a face-off with another group of strong-willed stakeholders - its bankers.
On 30 September, Lonmin is required to meet stringent debt covenants on two large loans - a $700m (£430m) syndicated bank loan and a smaller 1.98bn rand (£150m) loan. Lenders stipulate that the ratio of net debt to earnings before interest, tax, depreciation and amortisation (ebitda) be no more than 3.5 to four times. As a result of the recent industrial action, analysts such as Alison Turner at Panmure Gordon say the company now has little to no chance of meeting its covenants; she expects Lonmin's ratio will instead be around 7.4 times.
Admittedly, Lonmin's workers are now back to work having signed a wage settlement agreement - labour costs will rise by an average of 14 per cent - yet six weeks worth of lost production is likely to have had a serious negative effect on Lonmin's earnings.
