Lonmin shareholders shun crucial $400 million rights issue

By Olivia Kumwenda-Mtambo

JOHANNESBURG (Reuters) - Platinum producer Lonmin's (LMI.L) deeply discounted $400 million (£263 million) rights issue was undersubscribed, forcing the company's underwriters to buy shares in the company, showing that investors are losing faith in the beleaguered mining sector.

Lonmin, seeking cash to stay afloat, said its underwriters found new subscribers for about a quarter of the shares on offer, after its shareholders only bought 19.2 billion shares, or 71 percent, of its proposed 27 billion share issue.

The underwriters, HSBC, J.P. Morgan Cazenove and Standard Bank, will take up the other billion shares, Lonmin said.

The shares were priced at just a penny each on Nov. 9, a 94 percent discount to the stock's previous session closing price of 16.25 pence on the London Stock Exchange.

"The lacklustre support for Lonmin indicates a possible market apathy for PGM (platinum group metal) stocks in what remains a challenging market," BMO Capital Markets analysts said.

Bruised by strikes, rising costs, a weak platinum price and slowing demand, South Africa-focused Lonmin (LONJ.J) also said it planned to raise another $370 million in loans to refinance debt currently due in May 2016.

Lonmin's shares have fallen 95 percent this year as the market had worried about its viability with labour costs still high and the price of platinum stuck at multi-year lows.

Its shares closed down 3.9 percent at 0.99 pence, having earlier touched a low of 0.92 pence.

The pain is being shared by rivals such as Impala Platinum (IMPJ.J) and Anglo American Platinum (Amplats) (AMSJ.J), which sold its labour-intensive South African Rustenburg mine to local gold producer Sibanye (SGLJ.J).

Amplats' parent company, Anglo American (AAL.L), is planning to shut or sell dozens of loss-making mines, highlighting the scale of the fallout from the commodities slide.

Platinum (XPT=) is trading at levels last seen in 2008, hobbled by slowing demand in top consumer China.

Goldman Sachs analysts said the Lonmin share issue would keep the the platinum market in surplus as it allowed the company to remain functioning.

"We estimate the company now has sufficient funding in place for at least a couple of years even if it continues to burn cash," they said in a note.

Lonmin's shareholders approved the share issue last month after the company warned that if it couldn't raise the cash trading in its shares could be suspended.

A Lonmin spokesman said South Africa's Public Investment Corporation (PIC), which owns about 7 percent of the company, took up its full entitlement.

The PIC had also sub-underwritten a material portion of the issue, over and above its entitlement, but the miner's spokesman said the company would not comment further.

(Additional reporting by Mamidipudi Soumithri in Bengaluru,; Editing by David Clarke and Greg Mahlich)