Found on stockhouse..
Lonmin cools expansion boots
David McKay
Posted: Mon, 28 Feb 2005
[miningmx.com] -- LONMIN appears to have quietly adjusted its sights with regard to plans to diversify following murmurs of discontent from the platinum group’s predominantly British shareholders. Lonmin CEO Brad Mills says that the firm will take its time before buying into commodities such as iron ore or coal – a potential shift in focus that was signalled by Mills only months after taking Lonmin’s helm. It’s a signal warning about upsetting the apple cart for Mills, who previously headed the base metals division of giant resources company BHP Billiton.
“We’re still continuing to look at opportunities. But our first prize is to find new platinum ounces,” Mills says from his office in Houston. “We remain value-seekers – but timing is not an issue; we have the control over our own timing.”
Last year, Mills expressed an interest in buying into the world’s so-called nonscreen-traded commodities, such as coal or iron ore. These raw materials have a limited spot market because prices are normally negotiated in year-long binding contracts.
A report in London’s Financial Times says that the alteration in focus from platinum to something else surprised shareholders, including Prudential plc, a fund that owns just over 12% of Lonmin. The sentiment was that London already has three major diversified mining firms and at least two other aspiring diversified miners. They don’t want another as much as they would want a pure platinum option.
Changing the timing of the diversification strategy has been interpreted as deferring it. “Why would shareholders want that? (diversification),” says Evy Hambro, fund manager running the US$6bn gold and resource funds of Merrill Lynch Investment Managers. “Lonmin is a highly cash generative, low indebted group. It would make better sense to continue with that until shareholders have been won over and then approach them with new ideas. British investors want a British platinum bond.”
Lonmin shareholders have had to contend with a switch in company strategy before. In 2003, Lonmin chairman Sir John Craven said that the board was studying a move into other mining. Months later, the strategy shift was reduced to a backroom muffle.
Henk de Hoop, a platinum analyst at Barnard Jacobs Mellet, says that a fresh attempt to diversify Lonmin would be bad timing. First, the company is likely to be sixth or seventh in the queue of Britain’s existing diversified miners – Rio Tinto, BHP Billiton and Anglo American, among others – in the bidding stakes for new investments in bulk commodities.
Second, De Hoop says that investments in these commodities would be highly expensive. Iron ore prices are expected to make a quantum leap in line with massive Chinese demand for steel products. Accessing the market today would represent a top of the market investment.
There’s also a third consideration: that Lonmin wouldn’t be able to make an investment large enough for it to become a major force in bulk commodities. “Lonmin is not really a sizeable enough company to make an impression on the diversified mining market,” says Stephen Roelofse, a fund manager at Sanlam Investment Managers. “Bulk materials are huge investments. It would be tough to make meaningful acquisitions.”
So if platinum is to remain the focus of growth for Lonmin, it must take on board the challenges already facing Impala Platinum. Both companies have a desire to grow platinum output but are constrained from doing so, mainly because AngloPlat owns most of the prospective ground in SA.
Impala has significant upside in Zimbabwe – roughly 300m oz of platinum group metals at its 84,5% held Zimplats. However, growing political risk is flooding its directors with fresh caution. That was evidenced when Impala announced a slowdown in development of its Zimbabwean platinum interests. However, Lonmin is considering an investment in Messina Platinum, the JSE Securities Exchange-listed company that’s 91,5% held by Canadian company Southern Platinum.
Mills won’t confirm there’s an interest, but says that he’s on the lookout for value anywhere in the industry. Lonmin spokesman Anthony Cardew says: “We aren’t going to precipitate shareholders out of platinum. We’ve re-emphasised our interest in new platinum group metal assets.”
Patrick Evans, Southern Platinum CEO, confirms approaches for shares in Messina Platinum from “half a dozen” firms, including empowerment entities. Evans expects to finalise the sale of equity in Messina before mid-year.
Meanwhile, Lonmin has spoken about plans to lift output to 1,1m oz/year from 2010, a 20% improvement in output from its 913 000oz in its current financial year. |
