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