| |
Mills quits as Lonmin squares up to Xstrata
Allan Seccombe
Posted: Mon, 29 Sep 2008
[miningmx.com] -- LONMIN, the world's third-largest platinum producer, changes chief executives as it braces for a potential hostile bid from Xstrata. The new CEO Ian Farmer is tasked with turning the company around.
Lonmin's shares dropped like a stone as the market bet that Xstrata wasn't going ahead with its bid.
Brad Mills has come under criticism for the direction in which he's steered the company and the veritable exodus of management from the group. He's also been criticised for running the difficult operations largely from London.
Mills "stepped down as chief executive officer by mutual consent", Lonmin said in a statement. Farmer's appointment is effective immediately.
Lonmin’s management has issued a string of production downgrades, with the latest taking projected sales for 2008 down to 725,000 platinum oz because of processing problems as well as
issues on the mining side. Xstrata wants to restore production to the 2006 level of one million PGM oz and then grow it from there.
A weak share price and an opportunity to take advantage of shareholder unhappiness with the way Lonmin has been managed prompted Xstrata to tell investors on 6 August that it could made a cash offer of £33/share. The news on the day pushed Lonmin's shares up 50%.
Xstrata by that date had already bought an eight percent stake in Lonmin on the market. It has to lodge its formal offer by 2 October.
"Xstrata is due to clarify its intentions later this week. However the Board has
an ongoing duty to manage Lonmin in the best interests of shareholders," Lonmin said on Monday.
"We have decided the time is right to appoint a new Chief Executive Officer and we believe Ian is the right person to lead the Group. As one of his immediate priorities, Ian will lead a review of the Group's operations focused on improving performance and maximising value for Lonmin shareholders from our unique and highly attractive long-term assets," it said.
Xstrata CEO Mick Davis argues that his company has the skills and experience to turn Lonmin around, both on the mining and processing side, given its experience in chrome in South Africa as well as its Elandsfontein platinum project.
The Lonmin share price is showing the market
doesn't think Xstrata will go ahead with its bid. Lonmin is down 10.5% at £22.09, more than £10 below the price Xstrata could offer.
Analysts point out if Xstrata doesn't make the formal bid it will be out of the running to make another offer at a lower price for 12 months. This could put Lonmin back in play and somebody else might come in at a lower price, but the question remains who.
"If Xstrata had made their move a few months later they would have looked like absolute heros," said RBC Europe analyst Leon Esterhuizen, pointing out the sharp fall in the platinum price and strong pull back in platinum counters.
Xstrata, at the same time as unveiling a possible bid for Lonmin, entered a joint venture with Australia-listed Nkwe and its black empowerment partner Genorah for a 50% option over five properties on the Eastern Limb of the Bushveld Complex. Nkwe has said it was aiming to a million ounce producer from those properties.
Farmer is a
director of Lonmin, having been appointed in 2001, serving as chief strategic officer. He's been with Lonmin since 1986. He served as finance director of Lonmin Platinum in South Africa for six years up to 2001.
A platinum analyst said during Mills' tenure Lonmin had gone from a low-cost producer to a troubled company. The analyst said the distance of top management from the operations, having based themselves in London, as well as the drive for mechanisation had made it difficult for local management to buy into the vision for the company at a time when skills are so highly sought after.
| |
0% 
