[miningmx.com] – RELATIONS between Lonmin and its largest
shareholder, Xstrata, have soured since Xstrata renewed attempts to take it over
seven weeks ago.
The situation started with a proposal on 12 October that Xstrata’s platinum, chrome
and vanadium mines in South Africa should merge with the struggling Lonmin in a
reverse takeover that would give Xstrata a stake of at least 70% in Lonmin.
However, Lonmin chairman Roger Phillimore said the board rejected the proposal, one
reason for this being that it did not include a premium for a management takeover.
Xstrata, which owns 25% of Lonmin, followed this up on November 8 by a more
aggressive proposal: Xstrata would only follow the $815m rights issue being put
forward by Lonmin in order to meet its debt obligations if Lonmin’s executive directors
are replaced and if Lonmin commits itself to a management contract with Xstrata.
Xstrata would then appoint all Lonmin’s top management, including the CEO.
Xstrata bought its shares in Lonmin in 2010 and 2011, but wrote off $512m of their
value earlier this year because of the sharp fall in Lonmin’s share price over the past
year. The takeover bid began a few days after the Marikana massacre when Lonmin
CEO Ian Farmer was seriously ill in a London hospital.
“The two proposals both contain possibilities of destabilisation. Our board is focused
on a healthy financial future, and these proposals will divert us from that,’ Phillimore
said on Friday (November 9).
The Xstrata proposal surprised the mining community, but makes sense to many
analysts and fund managers.
Xstrata’s Eland platinum mine and its chrome activities are faring badly at present,
partly because of high electricity costs in South Africa and low platinum prices. A
merger with Lonmin, which produced 712,000 ounces of platinum in the year to end-
September, would be a bargain at Lonmin’s current share price.
The merger of the chrome and platinum smelters could unlock considerable synergy.
“It could result in a much larger company and a new growth path for a new company
that would be capable of further consolidation,’ one analyst said.
“However, the timing is not ideal for such a transaction. Lonmin’s share price has
plummeted, because of among other things the Marikana tragedy, and it is doubtful
whether Lonmin’s shareholders would get value out of this in the short term.
However, in the longer term it could be a very good vehicle for further
consolidation,’ he said.
Xstrata made it clear that Lonmin’s rejection of the offer is not the end of the
matter. “We proposed several solutions to create value for shareholders, but
Lonmin’s management rejected them without any real discussion.
Lonmin’s management didn’t have any constructive solutions to its problems either.
“We believe other big Lonmin shareholders share our concern.
“We remain open to all constructive solutions that could strengthen Lonmin’s
management and improve its operational capacity,’ Xstrata said in a statement.
Lonmin’s share price has lost about 52% of its value in the past year.
