Xstrata To Take Part In Lonmin Rights Issue But Calls For Board Change

By Alex MacDonald

Anglo-Swiss miner Xstrata PLC (XTA.LN) announced Thursday that it would take part in Lonmin PLC's (LMI.LN) $817 million rights issue but put the South African platinum producer on notice that it intends to seek changes in its board and management.

The rights issue is seen as critical to help Lonmin, the world's third largest platinum producer, strengthen its balance sheet and avoid a covenant breach as it seeks to restore operations to normal output after six weeks of illegal strikes that resulted in 46 deaths and a significant loss of platinum production.

Lonmin urged shareholders Tuesday to support the fundraising so the company wouldn't be vulnerable to a takeover approach by Xstrata.

Xstrata, which has a nearly 25% stake in Lonmin, approached Lonmin's board in October with an offer to let Lonmin take over Xstrata's vanadium and platinum businesses in return for granting Xstrata majority control of the combined business.

The deal was conditional on Lonmin conducting a $1 billion rights issue. Lonmin's board rebuffed that offer and a second Xstrata offer last week in which the Swiss-based miner said it would participate in the rights issue only if Lonmin promised to change its executive directors.

In a letter to Lonmin's chairman Roger Phillimore, Xstrata CEO Mick Davis said, "We do not wish to contribute further uncertainty to Lonmin's position that may further impede operational performance and delaying the proposed rights issue could run the risk that market conditions or other factors prevent a successful rights issue in the future."

He said, however, that Xstrata will "be seeking change to the board and management promptly following completion of the rights issue" with a view to overhauling Lonmin's current business plan and creating a "realistic strategy to restore shareholder value."

Lonmin's shareholders are due to vote Nov. 19 on the rights issue, which needs approval from 50% of voting shareholders. It appears the company doesn't have far to go.

In a statement Thursday, Lonmin said 86% of the proxy votes received to date from shareholders were in favor of the rights issues. Shareholders representing 47% of the company's outstanding shares have submitted their proxy votes, a Lonmin spokesman said later. Taken together, the two figures mean just over 40% of shareholders favor the rights issue.

Lonmin welcomed Xstrata's support and said it would consider all shareholder comments during the rights issue process.

Mr. Davis said Xstrata would seek another Lonmin shareholder meeting in the absence of assurances from Lonmin's board to make changes at company. Shareholders who have a 10% stake or more in Lonmin have the power to convene a general meeting, an Xstrata spokesman said.

Lonmin's shares closed Thursday up 0.7% or 3.4 pence at 490.4 pence a share.

--Tapan Panchal contributed to this story

Write to Alex MacDonald at [e-mail]

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