United Kingdom-based resources group Lonmin is considering making an offer to minority shareholders of listed platinum mining operation Messina once its acquisition of the mine is completed, according to CEO Brad Mills.
The news follows the announcement earlier on Tuesday by Lonmin and Canadian miner Southern Platinumt that they have entered into an agreement whereby Lonmin will offer to acquire the outstanding common shares of Southern Platinum for a cash consideration of $190-million.
Southern Platinum owns 91,5% of Messina, which operates the Messina platinum mine on the eastern limb of South Africa’s bushveld complex, approximately 250km from the Lonmin Platinum operations.
“We have been in discussions with the JSE Securities Exchange about a level at which minority shareholders would be comfortable with,” Mills said in a conference call. “We will complete the deal with Southern and then we will look at appropriate values to approach the minorities with.”
If Lonmin buys out Messina minority shareholders, Messina will then most likely be de-listed from the JSE. Lonmin expects the acquisition to be completed within about 90 days.
Explaining the rationale behind Lonmin’s offer for Southern Platinum, Mills said that the Messina mine, although having experienced financial difficulties, is currently operating at a break even level given the current rand exchange rate and platinum price, and that Lonmin will accelerate the implementation of a fully mechanised mining method at Messina so that it will be profitable within 12 months of completion of the acquisition. Lonmin has developed a three-year conversion and expansion programme for Messina that will require $75-million in investment to finish its conversion to a fully mechanised mining method.
“Within 12 months of completion of the transaction Messina should be profitable — it will take one year to get the ore flow to profitable levels,” noted Mills. “Once the conversion is completed, Messina should be able to achieve cash costs comparable with that of Lonmin’s own operations, and therefore attractive profitability at the current rand exchange rate and platinum price.”
The longer-term but most attractive feature of the acquisition was that the switching of the smelting contract from Impala Platinum to Lonmin would save an estimated $40-million to $50-million in costs (on a net present value basis) when it occurred.
Meanwhile, Lonmin financial director John Robinson revealed that Southern had current outstanding debt of about $60-million, with the current facility repayable to a consortium of banks over the next three to four years (but subject to some recent renegotiation). The banks had undertaken with Lonmin not to seek to enforce any of the rights under the loan agreements for the period from now until the completion of the offer.
Lonmin would then look to determine the best way to fund the development of Southern’s assets.
Mills said that Lonmin wanted to retain the Messina management who were adding value to the operation, and would be sitting down with them over the next 90 days to decide which staff to retain “based on a full evaluation”.
Lonmin will also commence feasibility work on the large undeveloped platinum resource owned by Southern as soon as the transaction was completed, the CEO said.
“The undeveloped resource is one of Southern’s major attractions,” he noted. “We want to fully expand the potential of the resource and will come up with an integrated mine development plan.”
The company would also look to “rapidly implement” a black economic empowerment (BEE) solution for Messina, since the mining operation had not yet met the requirements of the mining sector’s empowerment charter, acknowledged Mills. Lonmin could bring its own empowerment credentials to the business in that regard.
Mills said Lonmin would continue to look for other opportunities to add shareholder value to the company, both in and outside of South Africa and in and outside of platinum.
“We have always said we are not interested in diversifying just for diversification’s sake, but will continue to look for good opportunities where the objective is growth in shareholder value. In Southern we saw fundamental value in a turnaround opportunity, where we are able to apply our platinum expertise – this just happened to be in South Africa and in platinum.” – I-Net Bridge