Even if Lonmin Plc seals a deal to bring all of its striking South African miners back to work, the world's No 3 platinum producer still faces a long and costly road to recovery.
The group's battered-down shares rose for the first time in more than a week on Thursday, on news it had signed an accord with some of the unions at the Marikana platinum mine after four weeks of strikes marred by deadly violence. But it may be too early for euphoria.
Critically, the wage talks did not include the militant breakaway union AMCU, which could scupper any deal. Even if workers return soon, Lonmin has been hit by a month of lost production and the absence of Chief Executive Ian Farmer, who has been on sick leave since last month.
Lonmin has already warned it is in danger of breaching debt covenants and has said it may need to raise equity. Some analysts have said it will need $1.25 billion in new capital, or nearly three quarters of its current stock market value.
"It is a very fluid situation. What is clear is that they will have to renegotiate the terms of their lending," said one banker familiar with the matter, who spoke on condition of anonymity.
The result of those negotiations will help determine the size of the potential rights offer, said the banker, adding Lonmin would likely struggle to raise $1 billion or more.
Even before the Marikana stand-off, Lonmin had been hurt by weakness in the platinum price, which is down by a third from its record 2008 high - and a balance sheet seen as one of the weakest among platinum miners.
Its profitability has also been less robust than some of its rivals. Over the last 12 months, Lonmin's ROE, or return on equity, averaged 5.6 per cent, according to Thomson Reuters data, below the average of 8.6 per cent for its industry.
Lonmin's operating margin is also among the thinnest, at 8.7 per cent versus an industry average of 20.3 per cent.
"Financially it looks really bad, and it is really bad. Unfortunately, this company has a habit of always being in debt," said Peter Major, a mining consultant at Cadiz Corporate Solutions in Cape Town.
"But Lonmin, it's not a bad ore body, and it's not a bad mine," Major said. "As long as platinum prices hold up, a bank would be crazy to pull out on this thing."
The company has debt covenants, or agreements with lenders, to keep net debt within 4 times Ebitda, or earnings before interest, tax, depreciation and amortization. It reported Ebitda of $75 million for the year through March 2012, but has said the covenants would likely be breached by September 30, the key date when they are due to be tested.
Lonmin had $356 million in net debt on its balance sheet at the end of March.
To mount a convincing recovery, Lonmin needs to complete delayed investment on new shafts, aimed at increasing output and driving down its overall cost of production.
"The only the way to salvage Lonmin is to give it enough capital so it can complete those two new shafts," said one analyst, who declined to be identified because of company policy on speaking to the media. "Anything less than $1 billion will just buy them some time."
But Lonmin may be forced to settle for less than it needs, given that the steady decline in its share price will likely erode market appetite for a rights offering.
London-listed shares of the company are down 27 per cent since early August, even after a more than 7 per cent relief rally on Thursday.
The depressed share price also makes Lonmin a potential takeover target. A cash bid by global miner Xstrata Plc, Lonmin's top shareholder with a stake just short of 25 per cent, was derailed by the 2008 financial crisis.
Xstrata is currently the target of a bid from commodity trader Glencore, the outcome of which remains to be seen. A renewed bid can't be ruled out.
Cadiz's Major said Lonmin remains an attractive asset despite its balance sheet woes.
"You don't need a genius to get this thing on its feet," he said. "The platinum is in the ground, you know where it is, you know what the grade is and you know what it's going to cost you to get it out. There are so many knowns in mining."