Glen­core: ‘We did what we could on Lon­min’

LON­MIN IS NOW WORTH A QUAR­TER LESS AND AT A CUR­RENT MAR­KET CAP­I­TAL­I­SA­TION OF R12.7BN.

Finweek English Edition - - INSIDE - BY DAVID MCKAY ed­i­to­rial@finweek.co.za

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”.

Ivan Glasen­berg

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