Xstrata Pushes for Takeover of Lonmin

The Anglo-Swiss mining giant Xstrata on Wednesday unveiled a $10 billion takeover bid for Lonmin, a leading platinum producer, to diversify its business from industrial metals like copper.

Lonmin, which is based in South Africa, swiftly rejected the bid as its shares soared 51 percent to a high of pound(s)35, or $63, slightly over Xstrata’s planned offer of pound(s)33 a share.

Xstrata’s move 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.

Five months ago, Xstrata escaped being bought when a takeover attempt by Vale failed.

Xstrata said it planned to buy more Lonmin shares in the market on Wednesday, adding to an 8 percent stake it bought from several major shareholders after the close on Tuesday.

Lonmin rejected the bid as undervaluing the company. “This is an opportunistic and entirely unwelcome attempt to acquire Lonmin at a price which undervalues its unique assets,” the company said in a statement.

Graham Birch, a BlackRock fund manager and a major Lonmin shareholder, said: “It’s a bit opportunistic because all the mining shares have been so battered in the last six weeks or so. Obviously Xstrata has taken advantage of market weakness. Mining shares have got so ridiculously cheap. I suppose it’s not impossible there will be bids for others.”

Xstrata would finance the bulk of its $10 billion offer through bank debt. Mick Davis, the chief executive, said he expected little problem in sealing the financing, considering the number of messages from bankers he said he had already received on Wednesday morning.

Xstrata’s move spurred gains in other mining shares as investors bet that other companies would take advantage of more reasonable valuations after mining shares lost around a third of their value over the past three months on worries about a global slowdown.

The U.K. mining index gained 4.3 percent, and Anglo American, around which takeover speculation has swirled, added 4.1 percent.

Shares in BHP Billiton gained 2.8 percent, and its takeover target, Rio Tinto, rose 3.2 percent.

Xstrata said it had the expertise to turn around the South African mines owned by Lonmin, which has repeatedly cut its production targets because of operational problems, smelter difficulties and power shortages.

Xstrata’s most important commodities are copper, coal and nickel. The company got into platinum last year with the $1 billion purchase of 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.

Lonmin has been turning robust profit, lifted 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 percent rise in first-half attributable net profit of $2.83 billion, higher than an average forecast of $2.65 billion by analysts polled by the company.

Originally published by Reuters.

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