Lonmin has rejected a reverse takeover proposal from its largest shareholder, Xstrata, which questioned the ability of the strike-hit platinum producer's current bosses to keep their loss-making group alive.
At the centre of a wave of strikes at South African mines that have left dozens dead, Lonmin highlights the difficulties facing a platinum industry under pressure from low prices, rising costs and a restive labour force.
Lonmin on Friday detailed a discounted $817 million rights issue to repair its balance sheet - its second cash call in three years - and said it had slid to a $698 million full-year loss.
But it was the news of investor and one-time suitor Xstrata's efforts to remove current management and, under at least one plan, take control of Lonmin, that came as a surprise.
"The proposals from Xstrata were conditional proposals, with terms that did not favour all of our shareholders," Lonmin's acting chief executive Simon Scott said.
Xstrata, which holds a 25 per cent stake as a result of a failed 2008 takeover attempt, said the aim was not to take control, only to protect the value of its investment. It took a $514 million write-down on its Lonmin stake in August.
But it also did little to ease the tension that has marked the four-year relationship between the two companies.
"Lonmin has suffered longstanding operational problems and we are concerned that the business does not have the management capabilities to ensure a sustainable future, even if short term funding issues are resolved," an Xstrata spokesman said.
"We believe our concerns are shared by other major Lonmin shareholders," he said, adding the group was open to "all constructive solutions" to strengthen management and operations.
Under a first proposal made last month, Xstrata would have sold its South African platinum group metals, chrome and vanadium businesses to Lonmin for shares, conditional on a $1 billion rights issue, which they would underwrite.
Xstrata – which also demanded the right to appoint the chairman, the chief executive and the chief financial officer – would have ended up with 70 per cent of Lonmin.
The proposal was rejected. A source involved in the matter said Lonmin felt a premium had not been offered for control, and Lonmin had concerns about a potentially lengthy process that would have meant breaching lenders' conditions.
Lonmin and Xstrata did not disclose the terms of the deal, but the Xstrata assets in question, all South African, are valued at as much as $3 billion, analysts said. Xstrata made a separate proposal on Thursday that would have seen it support the rights issue currently planned, but replace Lonmin's executives. This has also been rejected.
Lonmin said it had not received other proposals.
Xstrata is now expected to woo fellow shareholders, but it may not be easy to get support for a management change.
"Xstrata were trying it on. The first proposal probably reflects the fact that maybe Xstrata do not want to be in platinum mining," said one of Lonmin's 10 largest shareholders.
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