Xstrata backs Lonmin rights issue

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Xstrata confirmed yesterday that it would participate in full in the circa £500m rights issue in Lonmin. Absent a renewed takeover overture, then it was pretty obvious that they wouldn’t allow themselves to be diluted at the bottom.

This is good news for Lonmin shareholders as its (a) highly unlikely there will be any stock left with the underwriters and (b) given the non deliverability of the Nil Paids to cover the short position of approx 40m shares outstanding, puts the odds of a monster short squeeze pretty high.

Roger Phillimore, Lonmin’s chairman, said yesterday that they had “overwhelming support” from shareholders for the cash call ahead of its meeting on Monday.

“Absent of some completely unforeseeable event, the rights issue will go through and we will get $817m gross,” he said. This will leave Lonmin completely debt free and the best positioned of all the platinum players.

Mick Davis, Xstrata’s chief executive, said the company was seeking changes to Lonmin’s board and management “promptly following completion of the rights issue”.

He said: “As a significant Lonmin shareholder, we are concerned about the destruction of value of our shareholding. For two years we have sought to address the strategic and operational challenges that Lonmin faces.

Given the dire financial position of Lonmin, we concur that a substantial recapitalisation of the business is required. However, that recapitalisation must be backed by a suitable management team and business plan.”

Mr Phillimore rejected criticisms of Lonmin’s management, adding: “We are not going to be bossed about . . . We have made no concessions to Xstrata.”

He said that Lonmin had committed to look at the need for permanent appointments once the rights issue was completed.

As the wildcat strikes erupted at Lonmin’s operations in August, Ian Farmer, chief executive, was diagnosed with a serious illness. Simon Scott was appointed acting chief executive.

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