Xstrata launches $10bn cash bid for Lonmin
Miner Xstrata unveiled a $10-billion takeover bid for the world’s third-biggest platinum producer, Lonmin, to diversify its business from industrial metals such as copper.
Lonmin shares soared 51% to a high of £35 on Wednesday, slightly over Xstrata’s planned offer of £33 a share, and were trading up 48% at £34,22 at 7.25am GMT.
Anglo-Swiss Xstrata’s swoop is part of a wave of consolidation in the metals sector amid booming demand from China that has sent prices soaring over the past few years.
Xstrata said it planned to buy more Lonmin shares in the market on Wednesday, adding to an 8% stake it bought from several major shareholders after the close on Tuesday.
“We’ll stand in the market today with a firm offer to shareholders and those who wish to accept we’ll take their shares,” chief executive Mick Davis told Reuters.
Davis said he rang Lonmin management on Tuesday night, who said they would assess the offer. Lonmin was not immediately available for comment on Wednesday morning.
Analyst Asa Bridle of Seymour Pierce advised shareholders to sell Lonmin, which has struggled to meet production targets.
“Given our long-term negative stance towards Lonmin, which has been fuelled by our concerns at its operation performance, we advise investors to sell into the strength created by this offer.”
Xstrata would fund the bulk of its $10-billion offer through bank debt and Davis said he expected little problem in sealing the financing considering the number of messages from bankers he had already received on Wednesday morning.
Xstrata said it had the expertise to turn around the South African mines owned by Lonmin, which has repeatedly cut its production targets due to operational problems, smelter difficulties and power shortages.
Xstrata’s most important commodities are copper, coal and nickel, but the firm entered platinum last year with a $1-billion purchase of South Africa’s Eland Platinum.
Xstrata has grown from a small Swiss producer of steel alloys in the late 1990s to the fifth-biggest mining group by market value through a string of acquisitions.
“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,” Davis said in a statement.
Lonmin has been turning robust profits, boosted by record platinum prices. But in the past few months platinum prices have fallen by a third to $1 562 an ounce from a record $2 290 in March, dragging Lonmin shares down with them.
Xstrata also posted a 2% rise in first-half attributable net profit of $2,83-billion, higher than a average forecast of analysts polled by the firm of $2,65-billion.
A ramp-up in production of copper and coal in the second half plus strong commodity prices was expected to lead to a buoyant second six months of the year.
Davis told Reuters operating profit in coal was due to double in the second half compared to the first.