Xs­trata’s £33/share for Lon­min per­haps too low

Finweek English Edition - - Openers -

JUST WHEN it started look­ing as if no­body was in­ter­ested in plat­inum shares any longer, or in the metal it­self, Xs­trata – the min­ing com­pany with its head of­fice in Lon­don – made an un­so­licited of­fer for Lon­min, the world’s third-largest plat­inum pro­ducer.

Lon­min has long been in­volved in plat­inum, largely in the Marikana area. The Bushveld town of Mooinooi (with its lovely nine­hole golf course) is the cap­i­tal of Lon­min’s SA plat­inum ac­tiv­i­ties.

Xs­trata says its of­fer on 6 Au­gust of £33/share is a good pre­mium of 42% on the price of £23,19 at which Lon­min was re­cently trad­ing on the Lon­don Stock Ex­change, its pri­mary list­ing.

Not so fast and un­so­licited, replied Lon­min, which is also listed on the JSE, on 6 Au­gust. It ac­tu­ally makes sense: con­verted into rand, Xs­trata’s of­fer is worth about R478 per Lon­min share. But as re­cently as midJune Lon­min was trad­ing at R522 on the JSE. It then fell sharply, along with all the other plat­inum shares, and be­fore the of­fer, it was trad­ing at R322 on the JSE. That’s 37% less than in mid-June. Talk about vul­tures. Xs­trata was merely try­ing to ex­ploit that fall. Its of­fer isn’t so won­der­ful at all, Lon­min’s direc­tors warned on 6 Au­gust.

No won­der Lon­min’s shares were trad­ing at R500 on the JSE shortly af­ter Xs­trata’s of­fer – that’s al­ready at a 5% pre­mium to Xs­trata’s of­fer.

The share price of Aquar­ius Plat­inum, pos­si­bly the world’s fourth largest and which is also ac­tive in Marikana, also ben­e­fited from Xs­trata’s of­fer.

Over the past few weeks Aquar­ius’s share­hold­ers had to look on help­lessly while the value of their shares fell sharply from R126 to just R54. That’s a fall of 57% – just prior to Xs­trata’s of­fer for Lon­min.

In fact, along with Northam Plat­inum and East­plats, Aquar­ius is one of the plat­inum pro­duc­ers whose share price fared worst over the past few weeks. In April, Aquar­ius bought back Im­pala Plat­inum’s in­ter­est in it and in its sub­sidiary Aquar­iusSA for $790m. That’s nearly R6bn. Un­for­tu­nately, the tim­ing was slightly out. That’s a mas­sive price, cal­cu­lated at the cur­rent val­ues of plat­inum as­sets.

Luck­ily, Aquar­ius is­sued 23,14m new shares at R126 to fi­nance part of the buy­back of Im­pala’s in­ter­est. What it lost on the one hand with the buy­ing was made up partly by new shares placed at the higher price.

Af­ter Xs­trata’s of­fer for Lon­min, Aquar­ius’s price shot up from R54 to R69, an im­prove­ment of 25%. How­ever, the cur­rent price of R67/share for Aquar­ius is still just more than half of its value three months ago. The in­vest­ment vul­tures could now per­haps also look at this min­ing com­pany, es­pe­cially if Lon­min digs in its heels sharply.

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