Lonmin's swap option on Akanani

Brendan Ryan | Thu, 29 Jul 2010 15:18

[miningmx.com] -- LONMIN should look at swapping its Akanani project for Anglo Platinum’s (AngloPlat) stake in the Pandora joint venture through a deal which would benefit long-term prospects for both groups.

That’s the view of JP Morgan Cazenove analysts Allan Cooke and Steve Shepherd who reckoned this potential deal represented a key opportunity for Lonmin CEO Ian Farmer now that he has dealt with the pressing operational issues in turning the group around.

Akanani is located on the northern limb of the Bushveld Complex – the geological formation which hosts the platinum bearing reefs – and sits adjacent to and downdip of AngloPlat’s flagship Mogalakwena open cast mine.

Lonmin and AngloPlat are the major partners in Pandora which sits adjacent Lonmin’s flagship Marikana mining operations located east of Rustenburg.

The analysts commented, “It is clear to us that Akanani is of more potential value to AngloPlat than it is to Lonmin.

“Along a similar vein, we believe that Pandora fits naturally with Marikana for obvious reasons whereas it might be argued that it’s of lesser significance for AngloPlat.

“For these reasons we believe that an asset swap is a potential scenario which could add value to both parties. Neither company has commented on any such potential deal.”

Farmer put exploration work at Akanani on the back burner to conserve cash when he took over as CEO in 2008.

The JP Morgan analysts commented, “we’ve often remarked that we struggle to see that this asset fits in Lonmin.

“At its shallowest the reef under Akanani is over 700m below surface. Lonmin would probably need to invest about R10bn in shafts, mining equipment and a concentrator.

“Then, the Platreef target would produce huge volumes of low grade concentrate for smelting. Lonmin would have to build a huge smelter for this and electricity supply might well be an issue.

“To us it makes far more sense for this property to be consolidated with AngloPlat’s mine. Moreover it has a full tax shelter that would significantly enhance investment returns.

“Lonmin could only offset 25% of capital expenditure against its tax base since its existing cash generating assets are located near Rustenburg. A full shelter requires contiguity. “

The analysts believed the development of Pandora with Lonmin owning a majority stake would likely take place much more rapidly and, possibly, more efficiently than it would under the current ownership structure.

They added the consolidated Marikana area including Pandora should be capable of reaching and sustaining a production rate of approaching 1m oz/annum of platinum over the next five years given the full exploitation of Pandora.

Lonmin will produce 700,000oz of platinum in its current financial year to end- September.

Turning to Lonmin’s Limpopo mine (the former Messina Platinum) which is currently under care and maintenance the analysts commented it was “most unlikely that Lonmin will re-open this problematical high cost mine.

“We believe it may fit better with a junior. We’d look for the group to dispose of this asset. If it did, it might do in such a way as to enhance its empowerment credentials, were a black economic empowerment buyer to be found.”.