Lonmin (LSE: LMI.L - news) has accused its major shareholder Xstrata (Other OTC: XSRAF.PK - news) of trying to destabilise the group by proposing a reverse takeover and cull of senior management while the struggling miner pursued a $817m rights issue.
Platinum miner Lonmin disclosed just how testy relations with its near-25pc shareholder had become as it dived $698m (£438m) into the red at the full-year and unveiled a deeply-discounted cash-call the financial fall-out from the bloody strike at its Marikana mine in South Africa that left 46 dead.
Lonmin said larger miner Xstrata had made two separate proposals in recent weeks, both rejected, aimed at gaining control of the group without paying “an appropriate premium”.
In September, shortly after the Marikana tragedy, Xstrata’s chief executive Mick Davis tabled a reverse takeover and related $1bn rights issue that would have seen the bigger mining group inject its platinum, chrome and vanadium assets into Lonmin and emerge with more than 70pc of the enlarged business.
After Lonmin rebuffed that proposal on November (Xetra: A0Z24E - news) 2, Xstrata returned on Thursday afternoon saying it was prepared to take up its rights in the 9-for-5 cash-call at 140p on the condition it put its own managers in charge of Lonmin, “including the appointment of the chief executive officer”.
That plan would have seen the ousting of all Lonmin executive directors, led by acting ceo Simon Scott, who took on the role after the serious illness to incumbent Ian Farmer.
Lonmin chairman Roger Phillimore said the proposals had “two features in common. The first one was destabilisation. The second was they sought to transfer effective control of the company without recognition of the need to pay an appropriate premium.”
He said the reverse takeover plan “imposed a structure and timetable that would have jeopardised” the refinancing of the company which was heading for a banking covenant breach and “greatly weakened its negotiating position”. He added that Thursday’s proposal, timed just before the results, “clearly wasn’t designed to make things go easily”.
Lonmin does not need Xstrata to take up its rights as the cash-call, at a 44.4pc discount to the theoretical ex-rights price of 252p, is underwritten by eight banks. The fundraising is costing Lonmin $40m.
A spokesman for Xstrata, which is planning to merge with commodities trader Glencore, said: “This is not about attempting to gain control of Lonmin, it is about protecting the value of shareholders’ investment. Lonmin has suffered longstanding operational problems and we are concerned the business does not have the management capabilities to ensure a sustainable future, even if short term funding issues are resolved.”
Xstrata, which bought its Lonmin stake for $1.86bn, has twice written it down, with the holding now in the books for just over $1bn far more than currently valued by the market, given Lonmin has a market worth of only £925m.
He said Xstrata, which backed Lonmin’s $450m cash-call two years ago, believed its “concerns are shared by other major Lonmin shareholders”, adding: “Lonmin management rejected our proposals without substantive engagement and Lonmin has never proposed a constructive solution to its management problems.” Mr Phillimore hit back, insisting the company had “made it abundantly clear that we were open to further discussions”.
Analysts were torn on Xstrata’s likely next move. Alison Turner, at Panmure Gordon, said: “We believe that the fact that Xstrata offered alternative proposals which would have resulted in Xstrata gaining control of Lonmin represents a huge vote of confidence in the underlying asset base”.
Other analysts said, however, that Xstrata could allow its stake to be diluted as Glencore chief executive Ivan Glasenberg is no fan of platinum mining.
Xstrata will decide its next move before Lonmin’s shareholder meeting on November 19 a day before Xstrata and Glencore investors vote on their own merger.
Lonmin, which paid no dividend, saw revenues fall from $1.99bn to $1.61bn and a reversal of last time’s $293m profits - hit by Marikana and plunging platinum prices.
Lonmin shares rose 2.5 to 455.3p. Xstrata fell 7.7p to 970.3p.