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Xstrata Raises Lonmin Stake to 25%, Blocks Other Bids (Update2)

By Brett Foley

Oct. 1 (Bloomberg) -- Xstrata Plc raised its stake in Lonmin Plc to 25 percent to try to block other bidders from gaining control of the world's third-largest platinum producer.

Xstrata spent 440 million pounds ($784 million) today to buy 14.2 percent of Lonmin at an average 1,979 pence a share, the Zug, Switzerland-based company said in a statement. It earlier scrapped a planned hostile bid at 3,300 pence as ``extreme'' financial-market turmoil prompted concern over funding the deal.

``Xstrata are not walking away, but have effectively locked out a competing bid at an attractive average price,'' Michael Rawlinson, head of mining, resources and energy at London-based brokerage Liberum Capital Ltd., wrote today in a report. ``We expect Xstrata to come back and bid.''

Mick Davis, Xstrata's chief executive officer, wants control of Lonmin's South African mines and smelters to restore their output to the levels of two years ago. Lonmin's CEO Brad Mills quit the company Sept. 29 after overseeing falling production because of strikes, safety stoppages and equipment shutdowns.

``We continue to believe the medium and long-term fundamentals of platinum are robust and that the structure of the platinum industry remains attractive,'' Davis said in today's statement. Xstrata, the world's fourth-largest copper producer, has spent a total of 991 million pounds on Lonmin shares.

London-based Lonmin rebounded to 1,885 pence as of 1:01 p.m. local time after dropping as much as 31 percent to 1,580 pence, the biggest slump since January 1992. That's still 43 percent below the value of Xstrata's earlier bid.

Takeover Panel

Xstrata gained 6.2 percent to 1,822 pence. It has tumbled 43 percent since announcing the proposed offer Aug. 6, while the price of platinum has fallen 35 percent. The Swiss company, which already held 10.68 percent of Lonmin, said today it bought 22.2 million more shares.

The attempt to buy Lonmin shows the value of the company and ``the scarcity of large scale opportunities to enter the platinum group metals market,'' Lonmin said today in a statement.

Chairman John Craven had rejected Xstrata's earlier offer, calling it ``opportunistic'' and ``wholly inadequate.'' Lonmin had its own plan to return production to an annual rate of 900,000 ounces of platinum ``and beyond,'' Craven said.

On the day Xstrata published its proposal, Lonmin cut its production forecast for a third time in 2008, to about 725,000 ounces for the year to Sept. 30.

The U.K. Takeover Panel said on Sept. 3 that Xstrata needed to formalize its bid by tomorrow or walk away for six months. Xstrata can come back and bid at 3,300 pence a share after six months, or at a lower price after 12 months, Rawlinson wrote.

`Significant Risks'

``Lack of clarity and certainty regarding the future availability of credit introduces significant risks'' to the offer, Davis said today in a separate statement. The need to refinance a ``substantial portion'' of the debt for the plan within a year increased the risk of the transaction, given volatility in financial markets, the company said.

Xstrata has entered into a three-year $5 billion loan facility with a group of its existing banks to ``refinance existing debt and for general corporate purpose,'' it said. Today's purchase was funded with outstanding debt.

The Swiss mining company is 34 percent owned by Glencore International AG, the world's largest commodity trader, and is the biggest exporter of coal used by power stations. It also mines copper in South America, nickel in Canada, zinc in Australia and smelts ferrochrome in South Africa.

Anglo Platinum Ltd. is the world's largest producer of platinum, followed by Impala Platinum Holdings Ltd. The combined output of Lonmin and its two larger competitors account for almost 80 percent of global supply of the metal.

Xstrata was being advised by Deutsche Bank AG and Macquarie Group Ltd. and Lonmin by Citigroup Inc. and Greenhill & Co.

To contact the reporters on this story: Brett Foley in London at bfoley8@bloomberg.net

Last Updated: October 1, 2008 08:49 EDT