Lonmin’s Housing Debts Fall Due

An investigation into the 2012 Marikana massacre at Lonmin’s platinum operations in South Africa reported late last week, with complex implications for the company at the heart of the bloodiest police operation since the country’s apartheid era.

Lonmin’s shares initially fell on the release of the report, which was led by retired judge Ian Farlam, whilst Lonmin published a statement in London saying “it will take time to properly digest” the implications of the 660-page report.

Master Investor has been through the full report in detail and it paints a complex dynamic. Lonmin’s management is largely exonerated: former Lonmin director Cyril Ramaphosa, a leading figure within South Africa’s ruling party the ANC, is cleared of any conflict of interests during the strike, whilst the company escapes criticism for supporting a brutal police operation that led to the shooting of 34 mineworkers in shocking, televised scenes.

It would have been “unreasonable” and “absurd” for Lonmin to deny the police its assistance, Farlam concludes. Nor is Lonmin asked to apologise, or criticised for refusing to negotiate with workers whilst the strike was in its peaceful, early stages.

“Truly Appalling”

Lonmin’s investors however escape less cleanly. The report cites the “truly appalling” housing that the company provides its workers as a key cause behind tension and labour unrest at Marikana, slamming the “squalid informal settlements surrounding the Lonmin mine shafts.”

“To date the company should have built 3,200 houses,” the report says, “but only three show houses have been built at Marikana.” Lonmin’s “failure to comply with its housing obligations… should be drawn to the attention of the Department of Mineral Resources,” Farlam adds, “which should take steps to enforce performance.”

The loaded comments are a thinly concealed threat aimed at Lonmin’s very asset base, forcing the company to either plough fresh capital into house building, or risk losing its mining licence. Lonmin employs over 20,000 people, making its housing obligations substantial, but analysts with a “sell” rating on the company’s stock told Master Investor on Friday that the company “lacks the market support” to raise new money from equity investors.

Its debt options meanwhile are also severely limited. It has previously taken on loans from the mine lending division of the World Bank to fund house construction, but houses have nonetheless failed to materialise.

The company has avoided comment ahead of the report. Shares closed on Friday at £1.18, down 50 per cent in 12 months.