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LON - Lonmin Plc - Lonmin provides shareholders with further information on its
rejection of Xstrata`s Pre-conditional Offer
Lonmin Plc (Incorporated in England and Wales)
(Registered in the Republic of South Africa under registration number
1969/000015/10)
JSE code: LON
Issuer Code: LOLMI & ISIN: GB0031192486 ("Lonmin")
Lonmin provides shareholders with further information on its rejection of
Xstrata`s Pre-conditional Offer
13 August 2008
Introduction
The Board of Lonmin Plc ("Lonmin" or the "Company"), advised by Citi and
Greenhill, is today giving shareholders further information about why the
unsolicited pre-conditional offer for the Company by Xstrata Plc ("Xstrata") is
an opportunistic attempt to acquire Lonmin at a price which undervalues the
Company`s assets and business.
If and when Xstrata comes forward with a formal offer, the Board will provide
shareholders with comprehensive information to enable them to properly assess
the relative attractions of this opportunistic approach and the true value and
wealth creating potential of Lonmin.
In the meantime shareholders should appreciate that:
* Lonmin has a total mine life in excess of 100 years with 156.3 million PGM
ounces in reserves and resources
* Lonmin is the lowest-cost integrated producer of PGMs in the Bushveld
* Lonmin is one of only three integrated mine-to-market PGM businesses and
benefits from an integrated business model with sophisticated downstream
processing technology
* New and experienced Lonmin operational management team is in place and
improving performance
* Lonmin will benefit from its recent investment in mechanisation
* Lonmin has outstanding growth prospects, both in the shorter-term from a
recovery in production from 2008`s low point and in the longer-term from
exploiting the full potential of Marikana and the development of its
Akanani and Limpopo projects
Lonmin Chairman, Sir John Craven, said:
"Mining companies should be valued on their long-term fundamentals. Xstrata has
admitted that it has long coveted Lonmin`s long-life, high quality, low cost
assets. This opportunistic proposal is an attempt to acquire Lonmin`s assets
cheaply and capitalise on the expected improvement in our mining and processing
performance. It comes immediately following the recent decline in the platinum
price and the offer, if and when made, represents no more than the price
Lonmin`s shares traded at as recently as six weeks ago.
"This pre-conditional offer fails to recognise our growth potential given both
the ounces we have in the ground and the long term demand for PGMs in the
future. It is not in the interests of our shareholders and the Board will
continue to oppose it vigorously.
"Shareholders are urged to take no action in respect of the approach by Xstrata
and are strongly advised to reject the offer."
Lonmin has extensive and high quality South African ore reserves and resources
within the world`s premier PGM deposit
* PGM resources are scarce: Lonmin has 156.3 million PGM ounces (3PGE + Au)
including 91.7 million platinum ounces of reserves and resources in the
ground
* Lonmin has a total mine life in excess of 100 years
* Both of Lonmin`s key properties, the existing Marikana mine and the Akanani
development, are large, high quality ore bodies
* Lonmin`s average mining depth at Marikana is shallow, compared to its
peers, making mining more cost effective
* Lonmin is the lowest-cost integrated producer of PGMs in the Bushveld
Lonmin benefits from favourable supply demand dynamics in PGMs
* Positive long term demand fundamentals for platinum and other PGMs
* Platinum market is expected to remain in deficit, driven by:
* demand growth from tightening global emissions legislation and an
increase in automotive demand, particularly in emerging markets; and
* well publicised industry supply constraints in South Africa, which
accounts for approximately 77% of global platinum supply
New and experienced Lonmin operational management team is in place and improving
performance
* Mining - Experienced operational mining team led by Chris Sheppard,
Executive Vice President, Mining in place and well advanced in implementing
detailed work plans to optimise mining extraction and maximise Lonmin`s
value
* Process Division - Management team, led by Theuns De Bruyn, Executive Vice
President, Process Division, upgraded and focused on stable operations and
recovery improvements:
* Number One furnace is operating consistently in 2008 compared to
previous years and the re-design, planned for implementation in
November 2008, will further improve availability and mitigate risk
* concentrator recoveries already starting to improve with underground
recoveries up from 79.3% to 82.4%, during the third quarter of
financial year 2008 compared to the comparable prior year period; and
* programmes in place to increase the base metal refinery throughput and
improve recoveries at the precious metals refinery
* Shared Services - New President, Lonmin South Africa, Mahomed Seedat in
place and focused on driving effective service delivery
* Finance - Team focused on efficient capital allocation and cash flow
management under the guidance of experienced CFO, Alan Ferguson
* Delivery of operational improvements is expected to accelerate over the
next year
Lonmin benefits from an integrated business model with sophisticated downstream
processing technology
* Lonmin is one of only three integrated mine-to-market PGM businesses,
which:
* provides a significant barrier to entry and competitive advantage; and
* has allowed Lonmin to establish strong long-term relationships with
key industrial consumers of PGMs - this also brings valuable insight
into future customer demand trends
* Lonmin has 40MWs of installed smelting capacity with recent investments in
capacity, delivering increased operational flexibility
* Lonmin`s Number One furnace is specifically designed to process high-chrome
concentrates
* Lonmin has invested in new condition-monitoring technology at its smelter
Lonmin will benefit from its recent investment in mechanisation
* Mechanisation will deliver real safety, cost and productivity benefits:
* creates a safer working environment with fewer employees exposed to
risk;
* enhances production through fewer safety related mining shutdowns; and
* reduces exposure to future South African wage inflation
* Mechanised mining already accounts for approximately 12% of underground
Marikana ore mined during the third quarter of the 2008 financial year and
will continue to grow
* Lonmin has invested in, and supported, the development of innovative extra
low profile (XLP) equipment which is designed for use in the narrow seams
typical at Marikana
Lonmin has outstanding growth prospects
* Lonmin shareholders stand to benefit from the long-term growth potential of
the business, and in the shorter-term, from a recovery in production from
the low point of 2008
* Marikana:
* operational improvements to optimise mining extraction and maximise
Lonmin`s value are being executed by the new and experienced mining
management team;
* shaft sinking completed at K4 shaft - ore reserve development
commenced;
* Pandora JV: Lonmin has completed a pre-feasibility study on a stand
alone project to develop a 2.9 million total tonnes per annum
conventional mining operation; and
* Marikana smelting capacity allows for growth to around 1.2 million
platinum ounces per annum
* Northern Bushveld (Akanani and Limpopo):
* 46.1 million PGM ounces in reserves and resources at Akanani and
Limpopo ;
* the high quality deposit at Akanani, with its wide ore body, will
allow Lonmin to grow significantly over the next decade;
* pre-feasibility study for the first phase of the Akanani project to be
completed shortly;
* extensive drilling programme at Akanani resulted in a positive
increase in ore grade in April 2008;
* Lonmin has completed a pre-feasibility study for Limpopo Phase 2,
indicating a production rate of around 4.3 million tonnes per annum;
and
* Lonmin is planning a northern smelting and refining complex to service
both Akanani and Limpopo where geographical proximity offers economies
of scale;
* Lonmin`s portfolio of investments and exploration programmes provides
additional growth optionality
Xstrata`s pre-conditional offer is opportunistic
* The approach comes following a recent decline in Lonmin`s share price and
the broader PGM sector and is:
* below the price at which Lonmin`s shares were trading as recently as
30 June 2008; and
* below Lonmin`s volume-weighted average price over the last 18 months
* Before the approach, Lonmin, as well as other major PGM producers, was
trading at valuation multiples materially below long term average multiples
* Before the approach, the median analyst target price for Lonmin, which does
not include any takeover premium, was approximately GBP35 per share
* The approach comes immediately following the recent decline in the platinum
price, which does not reflect the favourable long-term supply demand
balance in PGMs
* Lonmin has an extensive programme of operational improvement that is being
implemented by the new and experienced operational mining management team;
Xstrata is seeking to capture these benefits which would otherwise accrue
to Lonmin`s shareholders
* Lonmin is the only London-listed mine-to-market pure-play platinum
producer; it is a unique company with world-class assets and strong growth
prospects which Xstrata should not be allowed to acquire for anything less
than a fair and appropriate value
Conclusion
Xstrata`s pre-conditional offer is an attempt to acquire Lonmin`s assets at a
price that does not reflect fair value for Lonmin shareholders. This offer fails
to recognise Lonmin`s growth potential given both the ounces Lonmin has in the
ground and the long term demand for PGMs in the future. The Board of Lonmin
continues strongly to advise shareholders to take no action in respect of the
approach by Xstrata and to reject the offer.
Enquiries
Lonmin: +44 (0) 207 201 6060
Alex Shorland-Ball
Citi: +44 (0) 207 986 4000
David Wormsley
Jan Skarbek
Tom Reid (Corporate Broking)
Andrew Forrester (Corporate Broking)
Greenhill & Co.: +44 (0) 207 198 7400
James Lupton
David Wyles
JPMorgan Cazenove (acting as Corporate Broker): +44 (0) 207 588 2828
Michael Wentworth Stanley
Jonathan Wilcox
Matthew Lawrence
Cardew Group: +44 (0) 207 930 0777
Anthony Cardew +44 (0) 7770 720 389
Rupert Pittman +44 (0) 7976 249 289
Financial Dynamics: + 27 (0) 21 487 9000
Nic Bennett +27 (0) 766 877 429
Citigroup Global Markets Limited ("Citi") and Greenhill & Co. International LLP
("Greenhill") are acting for Lonmin and no one else in connection with the
matters described in this document, and will not be responsible to anyone other
than Lonmin for providing the protections afforded to their respective clients,
or for providing advice in relation to the matters described in this document..
Under the provisions of Rule 8.3 of the Takeover Code (the "Code"), if any
person is, or becomes, "interested" (directly or indirectly) in 1% or more of
any class of "relevant securities" of Lonmin, all "dealings" in any "relevant
securities" of that company (including by means of an option in respect of, or a
derivative referenced to, any such "relevant securities") must be publicly
disclosed by no later than 3.30 pm (London time) on the London business day
following the date of the relevant transaction. This requirement will continue
until the date on which the offer becomes, or is declared, unconditional as to
acceptances, lapses or is otherwise withdrawn or on which the "offer period"
otherwise ends. If two or more persons act together pursuant to an agreement or
understanding, whether formal or informal, to acquire an "interest" in "relevant
securities" of Lonmin, they will be deemed to be a single person for the purpose
of Rule 8.3.
Under the provisions of Rule 8.1 of the Code, all "dealings" in "relevant
securities" of Lonmin by Xstrata or Lonmin or by any of their respective
"associates", must be disclosed by no later than 12.00 noon (London time) on the
London business day following the date of the relevant transaction.
A disclosure table, giving details of the companies in whose "relevant
securities" "dealings" should be disclosed, and the number of such securities in
issue, can be found on the Takeover Panel`s website at
www.thetakeoverpanel.org.uk.
"Interests in securities" arise, in summary, when a person has long economic
exposure, whether conditional or absolute, to changes in the price of
securities. In particular, a person will be treated as having an "interest" by
virtue of the ownership or control of securities, or by virtue of any option in
respect of, or derivative referenced to, securities.
Terms in quotation marks are defined in the Code, which can also be found on the
Takeover Panel`s website. If you are in any doubt as to whether or not you are
required to disclose a "dealing" under Rule 8, you should consult the Takeover
Panel.
This document contains statements that are forward looking. Forward-looking
statements are not based on historical facts, but rather on current expectations
and projections about future events, and are therefore subject to risks and
uncertainties which could cause actual results to differ materially from the
future results expressed or implied by the forward-looking statements. Often,
but not always, forward-looking statements may be identified by the use of
forward-looking words such as "plans", "expects" or "does not expect", "is
expected", "is subject to", "budget", "scheduled", "estimates", "forecasts",
"intends", "anticipates" or "does not anticipate", or "believes", or variations
of such words and phrases or statements that certain actions, events or results
"may", "could", "should", "would", "might" or "will" be taken, occur or be
achieved. Such statements are qualified in their entirety by the inherent risks
and uncertainties surrounding future expectations. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of Lonmin, or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such forward-looking statements are based on numerous assumptions
regarding Lonmin`s present and future business strategies and the environment in
which Lonmin will operate in the future. Among the important factors that could
cause Lonmin`s actual results, performance or achievements to differ materially
from those in the forward-looking statements include, among others, levels of
actual production during any period, levels of demand and market prices, the
ability to produce and transport products profitably, the impact of foreign
currency exchange rates on market prices and operating costs, interest rates,
operational problems, industry trends, labour relations, political uncertainty
and economic conditions in relevant areas of the world, the actions of
competitors and activities by governmental authorities such as changes in
taxation or regulation. Other than in accordance with its legal or regulatory
obligations (including under the UK Listing Rules and the Disclosure and
Transparency Rules of the Financial Services Authority), Lonmin is not under any
obligation and Lonmin expressly disclaims any intention or obligation to update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
The Lonmin directors accept responsibility for the information contained in this
document, except that the only responsibility accepted by them in respect of the
information relating to Xstrata, any of its subsidiary undertakings and the
directors of any such entity and/or any such subsidiary undertakings, which has
been compiled from published sources, is to ensure that such information has
been correctly and fairly reproduced and presented. Subject as aforesaid, to
the best of the knowledge and belief of the Lonmin directors (having taken all
reasonable care to ensure that such is the case) such information is in
accordance with the facts and does not omit anything likely to affect the import
of such information.
Date: 13/08/2008 15:25:02 Supplied by www.sharenet.co.za
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