Correction: Given platinum’s problems, can Xstrata really justify a Lonmin takeover? – by Lawrence Williams ( – November 12, 2012)

Speculation that Xstrata will make another attempt to oust the Lonmin Board and take the company over remains rife in London, despite Lonmin’s rebuff of the Xstrata overtures. (Correction on Lonmin rights issue status)

LONDON (MINEWEB) – Despite an official rebuff by the Lonmin Board, Xstrata looks as though it may well be about to make a serious play to take over Lonmin and its South African platinum mines – although the timing could be better for the diversified miner with the Glencore merger vote coming up in just over a week’s time – just a day after Lonmin’s own proposed fundraising plan is due to be voted on.

Xstrata is a logical saviour for Lonmin, although the latter doesn’t seem to think so. It owns 24.6% of Lonmin already, has platinum, chrome and ferrochrome operations in the Bushveld Complex area – where 90% of the world’s platinum reserves are thought to lie and which accounts for 70% of annual global production – but is not a major platinum miner and could view picking up the remainder of Lonmin at a relatively cheap price as an attractive long term play.

It is sitting on a huge loss on its existing holding, but nevertheless probably sees Lonmin’s platinum reserves, resources and operations as a great long term asset, particularly at Lonmin’s current hugely depressed share price. But, perhaps importantly if it doesn’t take up its rights, a large proportion of the the Lonmin fundraising could remain with the underwriters – even though the rights issue price has been set at a substantial discount to make it more attractive to existing shareholders.

South African assets are perhaps not flavour of the month among the international investment community at the moment given continuing demands for nationalisation of the mines by radical elements in the ruling ANC and the seemingly unending worker unrest.

But, as noted above, the Lonmin Board has already rejected an Xstrata-proposed reverse takeover structure. This had suggested that in exchange for a fully underwritten US$1 billion rights issue , Lonmin should acquire Xstrata’s existing platinum and chrome, and some other assets – this would result in Xstrata owning around 70 % of Lonmin.

As an alternative, Xstrata suggested it would support Lonmin’s proposed rights issue as long as it could effectively take over management. Given the Lonmin board’s rejection of both these ideas, Xstrata’s position now remains uncertain and it could possibly walk away from the Lonmin rights issue altogether which would leave it with a much reduced stake.

Lonmin has seemed to go from one crisis to another over the past few years and has been a perennial underperformer – but its past problems had been tiny compared with those which followed the killing by the South African Police of the 34 striking miners in a confrontation outside the company’s flagship Marikana mine.

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