[miningmx.com] – LONMIN said it rebuffed a reverse takeover by mining
house Xstrata and in a development that sours Lonmin’s relationship with its 24.6%
shareholder, its Board declined to bow to subsequent calls by Xstrata for its
resignation.
The development, revealed today by Lonmin interim CEO Simon Scott, throws into
question whether Xstrata will support the platinum company’s proposed $800m rights
offer that has been offered at a chunky 69% discount. “We have not formed an
opinion on the rights offer,’ an Xstrata spokesperson said. The results of the rights
issue will be disclosed at Lonmin’s annual general meeting, scheduled for November
19.
These breathtaking developments also puts Lonmin in play. “We will consider any
proposal on its merits and that are in the interests of shareholders,’ said Scott when
asked if the group would consider offers from other groups.
Speaking at the publication of Lonmin’s full-year results presentation, Scott said
Xstrata had offered to sell its platinum and chrome division to Lonmin in return for
supporting a $1bn equity issue that Xstrata said it would underwrite. This was
effectively a reverse takeover as it would hand Xstrata an estimated 70% of Lonmin,
assuming no other shareholders followed it.
Xstrata’s proposal also envisaged flooding the Board with its own members in a
shake-up that included the resignation of Scott and his CFO.
Scott said this had been the second time a reverse takeover offer had been tabled by
Xstrata; the first being in early 2011. The proposal was rejected, principally on the
basis that the offer was prejudicial to Lonmin’s other shareholders.
Lonmin also did not have enough time to complete the deal before breaking its debt
covenants, while it additionally hurt Lonmin’s negotiating position with its bank on new
debt covenants, Scott said in explaining why the Board had rejected Xstrata.
In a clear demonstration of taking the gloves off, Xstrata fired back a second proposal
as recently as November 8, saying that it would support Lonmin’s rights issue
provided Lonmin’s executive directors resigned. The company would then enter into a
management services agreement – a takeover by any other name.
Scott said Lonmin had also rejected this offer. “In particular, while the Board of
Lonmin continues to hope Xstrata will be able to support the rights issue by taking up
its rights in full, it believes it would be wholly inappropriate for the Board to cede
such substantial control to a single minority shareholder,’ Lonmin said in a statement.
XSTRATA REPLY
Xstrata said its offer to sell its platinum and chrome division to Lonmin and to rejig
the management structure, was “not about attempting to gain control of Lonmin’;
rather, it wanted to protect its investment.
It had already participated in a rights offer in 2009 for $457m and most recently
impaired its investment in the platinum firm by $500m. The write-down was based on
the Xstrata model that it valued Lonmin for its growth at a time when Lonmin had
scaled back its growth prospects.
“Lonmin has suffered long-standing operational problems and we are concerned that
the business does not have the management capabilities to ensure a sustainable
future, even if short-term funding issues are resolved,’ Xstrata said in a statement.
It added that Lonmin had failed to form “a constructive solution to its management
problems’, a concern Xstrata said was shared by Lonmin’s other shareholders.
“We remain open to all constructive solutions to strengthen Lonmin’s management and
operational capabilities to ensure that the business returns to profitability and a firm
footing for the future,’ Xstrata said.
RIGHTS ISSUE
Lonmin’s Scott said the $800m rights issue, the terms of which were divulged by the
platinum company, was “the right number’. He was responding to observations by
some analysts that the rights issue was insufficient to provide growth Lonmin needed
to lower cash costs. “It derisks the balance sheet even if the market did not recover,’
he added.
Lonmin said it would issue 365.5 million new shares for £1.40p/share (R19,48/share)
representing a 69.1% discount to the existing share and a 44.4% discount to the
theoretical ex-rights price of an existing share.
Shares issued would be equal to 64.3% of Lonmin’s currently issued share capital, but
if not followed the offer is underwritten at $1/share, equal to 62.5p/share are current
exchange rates – not a desirable outcome as the dilution will double.
Scott said the rights offer had generally been “well received’. Commenting on
whether Xstrata will follow its rights, Scott said: “That’s for them to decide’.
