[miningmx.com] – WHAT does Xstrata do with its 24.5% stake in Lonmin? Option one is to decline to follow its rights in Lonmin’s $800m capital raiser which would see the Swiss firm diluted to 8.8%.
Option two is to return with a fresh offer for Lonmin. Clearly, Lonmin’s CEO Simon Scott is open to the idea. And one mustn’t assume Ivan Glasenburg, due to become CEO of the merged Glencore/Xstrata if shareholders approve that transaction, is against platinum having presided over the 2011 approach to Lonmin as a board member at Xstrata. He may not be a fan of platinum mining but he’s definitely a fan of value, which Lonmin surely is in the right hands.
The third option is for Xstata to follow its rights. As Liberum Capital observed in a note last week, Xstata’s offers come out of the blue but they also suggest “a willingness to stay in the platinum industry,’ although the broker added it remained “cautious about its (Xstrata’s) intentions in the future’.
This last option would be the most difficult decision for someone like Mick Davis, incubment at Xstrata. Lonmin has made Davis’s concern over his platinum investment a public one. Does he now make the uncharacteristic election to take the backseat, hand the keys of his worst decision to an interim manager? The stakes have been raised.
Lonmin’s numbers don’t make comforting reading. The strike action at Marikana had a bigger effect on Lonmin than analysts expected.
Total costs associated with the strike were $159m which, included with a $602m write-down of Lonmin’s Akanani project, made for a loss of $550m (the “underlying profit’ which excludes this exceptional items was $57m).
The outcome is precious little cash flow and an increase in net debt to $421m in the interim period. In addition, Lonmin revealed that net debt had since increased to $550m by end-October.
Lonmin management says Xstata’s offer to sell its chrome and platinum assets with an inter-dependent $1bn rights offer, which it would underwrite, was not in the interests of all shareholders. But what do other shareholders make of entrusting the future of the company to current management and its hope that unprofitable production and supply interruptions will lift the company out of its current predicament?