Glencore: ‘We did what we could on Lonmin’
LONMIN IS NOW WORTH A QUARTER LESS AND AT A CURRENT MARKET CAPITALISATION OF R12.7BN.
Glencore CEO Ivan Glasenberg’s comments about the group’s decision to unbundle to shareholders its 23.9% investment in Lonmin would appear to suggest t hat t he Swiss headquartered group thought it was making the best of a bad situation.
Glasenberg inherited the stake as a consequence of the merger with Xstrata, which had bought the minority holding in the platinum company as a measure to block rival offers for it – a strategy which former-Xstrata CEO Mick Davis later acknowledged as a mistake.
In any event, Lonmin was immediately identified as a non-core investment by Glencore, largely because the metal couldn’t be screen traded. Given its lack of experience in the platinum niche, Glencore had no expertise in that market, said Glasenberg.
“On Lonmin, we had to assess the situation there,” he said earlier this month. “Two of our colleagues sat on the board and tried to ascertain how we could assist.” This included appointing a new chairman and adding Ben Moolman, formerly head of Eland Platinum which Glencore also inherited from Xstrata, to the executive committee [Moolman has since been appointed chief operating off icer]. “We believe we did as much as we could to get it in the right space,” said Glasenberg. “But we are not experts on platinum. We could have sold it on the market if there was a buyer; there were hints at potentially buying it, but no one would buy it at a premium, so we decided to unbundle it,” he said. “We took it to the best level we could.” What Glencore investors will do with their Lonmin shares is quite another matter; the fear is that they will sell it – a possibility played out in the performance of the stock since Glencore announced its unbundling strategy for the company.
Lonmin is now worth a quarter less and at a current market capitalisation of R12.7bn, the company is worth R5bn less than Northam Platinum thus losing its status as bronze behind the gold and silver of Anglo American Platinum and Impala Platinum respectively.
A report by Leon Esterhuizen, an analyst for CIBC Capital Markets, suggested that Lonmin needed to raise $300m (R3.7bn) to f inance growth, while Investec Securities, long a bear on the UK-listed stock, said the company has been delaying inevitable restructuring.
“We believe that shareholders in Lonmin need to realise t hat more money is needed if this company is to have any real prospect of remaining a prominent player in the PGM space and that delaying the inevitable could not only jeopardise the immediate future but see Lonmin left out in the cold with respect to lower-cost, longer-term output potential,” he said.
At the time of writing, there had been a resurgence in Lonmin, with Citi saying that the share represented a buying opportunity, albeit a high risk one, while adding that, operationally, the company’s Marikana asset had been relatively wellrun over the past three years.
“The fall has taken the price to a level which now offers 29% upside to our target price, despite us reducing that target price... because of the fall in the platinum price and due to a re-evaluation of costs,” Citi said in its report.
“Marikana’s only problem, in our opinion, is the currently low platinum price which has resulted in a low margin and a threat to its cash generation,” said Citi in its note. It did not see the depressed platinum price to be a longterm consideration as it had forecast an improvement to $1 700 (R21 060)/ oz from the current level of $1 115 ( R13 813)/oz before the end of the decade”.