HomeInternationalXstrata's US$10 billion takeover bid for Lonmin

Xstrata’s US$10 billion takeover bid for Lonmin

Mick Davis,
Chief Executive,
Zug, Switzerland — MININGREVIEW.COM — 07 August 2008 – Swiss-based international miner Xstrata plc has unveiled a $10 billion (R75 billion) takeover bid for the world’s third-biggest platinum producer, Lonmin in an effort to diversify its business from industrial and base metals such as copper.

In a media statement issued here the company announced a proposed cash offer for Lonmin of £33.00 for each Lonmin share, valuing Lonmin’s issued share capital at approximately £5 billion ($10 billion or R75 billion). The proposed offer price yesterday represented a premium of 42% to Lonmin’s share price of £23.19 as at the close of business on Tuesday. Xstrata had acquired 12,557,467 Lonmin shares, representing 8.03 % of Lonmin’s issued share capital.

Further to this announcement, Xstrata has revealed that it has acquired, through a wholly-owned subsidiary, a further 4,147,060 Lonmin shares, at a price of 3300p per share, representing approximately 2.65% of the existing issued share capital of Lonmin. This takes the total to 16,706,483 Lonmin shares, representing approximately 10.68% of the issued share capital of Lonmin.

The Xstrata announcement pointed out that South African-based platinum mining, smelting and refining expertise, successful track record and unique synergies position the company to turn around Lonmin’s operations. The transaction accelerated Xstrata’s platinum growth strategy and would establish the company as the third largest producer of platinum with further earnings diversification.

Lonmin’s operations and growth projects – located in the Bushveld complex which accounts for approximately 77% of global platinum supply – are fully integrated from mine to market, and benefit from a substantial resource base with a published life of mine in excess of 30 years and further growth potential.

The statement went on to say that Lonmin’s operations had consistently underperformed against its own forecasts on expected platinum sales, and had been subject to a declining sales and production profile at a time of robust prices. Current guidance of 765 000 to 770 000 oz of platinum for the year to 30 September 2008 was 15% lower than the initial guidance provided for this period of 900 000 oz, and represented the fourth downward revision this financial year.

This indicated an anticipated 18% decline in sales of platinum from the levels achieved two years ago of 939 654 oz in the twelve months to 30 September 2006, reflecting ongoing unexpected operational difficulties and lower than anticipated production.

“These issues have not been resolved,” says Xstrata, “and the company believes that Lonmin’s operations are attractive, but that a significant transformation of operating and management practice is required to return Lonmin to its former growth trajectory over time.

Xstrata chief executive Mick Davis commented: “Today’s announcement marks the next step in our strategy to develop a significant platinum business and add further scale and diversification to our portfolio. An unrivalled combination of operational synergies, relevant experience and skills, and a track record of turning around underperforming operations to create value, position Xstrata as the natural owner of the Lonmin assets.”

The statement added that Xstrata expected to fund its proposed offer for Lonmin through cash at hand and bank debt.  It did not expect any impediments to securing the necessary financing, nor any material regulatory impediments to the proposed offer.

It said relevant documentation was expected to be filed with anti-trust and other regulatory bodies as soon as possible.