Lonmin receives £5bn takeover offer

Shares in Lonmin soared almost 50% today after Anglo-Swiss mining firm Xstrata made a £5bn (€6.3bn) offer for the world’s third-largest platinum producer.

Xstrata bid £33 (€42) per Lonmin share, a 42% premium over its £23.19 (€29.3) Tuesday close price, but Lonmin said the approach was “opportunistic and entirely unwelcome”.

Lonmin is the world’s third-largest platinum producer, with the majority of its operations based in the Bushveld complex in South Africa.

The offer caused Lonmin shares to jump 47% to 3407p – above the offer price - while the rest of the mining sector was also higher after a disappointing session yesterday. Xstrata shares were 3% stronger.

Xstrata tabled its offer at the same time as reporting a 13% half-year revenues rise, with adjusted pre-tax profit flat at US$5.7bn (€3.66bn).

Chief executive Mick Davis said today’s offer proposal marked the next step in the company’s strategy to develop a significant platinum business and add diversification to its portfolio.

The company said the Lonmin business had been impacted by a number of operational difficulties over the past two years, including below budget production at a time of robust platinum prices.

It added: “Lonmin’s operations have consistently underperformed its own forecasts on expected platinum sales and have been subject to a declining sales and production profile at a time of robust prices.

“Current guidance of 765,000 to 770,000 ounces of platinum for the year to September 30 2008 is 15% lower than the initial guidance provided for this period of 900,000 ounces and represents the fourth downward revision in this financial year.”

But Lonmin urged its shareholders to take no action following Xstrata’s “unsolicited” approach.

It said: “This is an opportunistic and entirely unwelcome attempt to acquire Lonmin at a price which undervalues its unique assets.”

Seymour Pierce stockbrokers said Xstrata already had a sizeable business in South Africa with considerable experience of mining on the Bushveld through its chrome operations.

It added in a note: “A strong technology division may be able to improve performance at Lonmin’s mines, whilst the company also has platinum refining experience from its Nikkelverk refinery in Norway.”