Lonmin Plc (LMI), the platinum producer that rebuffed an approach by its largest shareholder Xstrata Plc (XTA), urged investors to participate in its $817 million stock sale or the company could become vulnerable to new offers.
“Failure to proceed with the rights issue would leave the company in a highly vulnerable position in its discussions with its banking group and, potentially, in relation to Xstrata if it were to make a further proposal,” Lonmin said today in a statement.
Xstrata is sounding out other shareholders’ views on the performance of Lonmin management and its planned stock sale while considering a revised offer, two people familiar with the matter said yesterday.
Lonmin has already rejected a proposal to buy Xstrata’s South African platinum and alloys businesses. The plan called for Lonmin to hold a $1 billion share sale that would be fully underwritten by Xstrata, increasing the Zug, Switzerland-based company’s stake to 70 percent from 25 percent in a reverse takeover.
Lonmin also spurned a second offer from Xstrata to support its rights issue, which is necessary to meet pledges to creditors, on the condition that senior management are replaced. Xstrata said last week it was concerned about management and “longstanding operational problems” at Lonmin.
“We think Lonmin is fearful that Xstrata’s previous proposals have merit and shareholders may approve a separate offer under similar terms,” Ben Davis, an analyst at Liberum Capital Ltd. in London, said in a note.
Lonmin needs to raise at least $700 million from the share sale by Dec. 31 after negotiating a deal with creditors amid plans to restructure its balance sheet, the company said. Shareholders are due to vote on the rights issue on Nov. 19.
“If the rights issue does not proceed by 31 December 2012 and the amended facilities agreements do not come into effect, the company may be unable to comply with its financial covenants in future tests which may ultimately jeopardize its very future,” Lonmin said.
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