Platinum miner Lonmin (LSE: LMI.L - news) has accused its biggest shareholder, Xstrata (Other OTC: XSRAF.PK - news) , of muddying the waters over its $817m (£515m) rescue rights issue by launching an attack on its management.
The owner of the Marikana mine in South Africa, where a bloody strike this summer left 46 dead, spelt out bluntly to shareholders the risks of failing to approve the cash-call a move interpreted as “panic” by some analysts.
While the rights issue costing $40m is fully underwritten, it still requires majority approval at Monday’s EGM.
Richard Phillimore, the Lonmin chairman, said the board had been driven to “clarify” the issues around the fundraising after two recent attempts by 24.5pc investor Xstrata to oust the management without paying any premium for control.
He denied there was any feedback from other shareholders that “gives me any concern” over the rights issue but described Xstrata’s tactics as “a muddying of the waters”. He added: “It would be wrong for us to assume shareholders will all behave rationally.”
Lonmin, which had $550m net debts at the end of October, stressed a bank refinancing was “conditional on completion of the rights issue” and that the miner faced a covenant breach if the cash-call failed.
Xstrata, which acquired its stake when it failed to buy Lonmin for what now looks a pricey $10bn in 2008, is reluctant to back the issue without changing a management weakened by a serious illness to chief executive Ian Farmer. Finance director Simon Scott was made acting chief executive.
Xstrata backed Lonmin’s 2009’s $450m rights issue but fears the latest could be throwing good money after bad. An Xstrata spokesman denied its moves were "opportunistic", saying it had attempted to "engage Lonmin's board and management team on various occasions over the past two years on how to restore profitability and create a more sustainable business".
He added: “Lonmin is seeking to pursue a rights issue without putting in place a credible management team and business plan that would allow shareholders to subscribe for their rights with more confidence that the business will return to profitability."
Mr Phillimore hit back, saying: “The truth of the matter is that everything that has happened since that rights issue in 2009 has been shared with Xstrata and had their full support. They have supported the management.”
He admitted, however, that Lonmin could not continue “indefinitely” with an acting chief executive and that the board "will need to make a decision sooner rather than later." Asked if the board had already appointed headhunters, he would only say: “We have conversations with headhunters all the time.”
Ben Davis, an analyst at Liberum, pointed out that in addition to Xstrata, which “may well not vote for the deal”, almost 22pc of Lonmin’s shares are out on loan. “Putting out an announcement like this makes people panic,” he said. “One thing we know is that Xstrata will try to leverage their position. They are not going to support this rights issue for free.”
Lonmin shares rose 1 to 484.2p.