Only joking! With all the excitement surrounding recent activity in the sector, the rumour mill has certainly been working overtime. Even Erin and I haven’t been able to stop ourselves joining in. We are not alone! Fuelled by the BHP’s extraordinary play for Rio Tinto, countless mining commentators have been fantasising about the potential mining deals on the horizon.
"Why don’t you take a closer look at some of the platinum group metal (PGM) players," Erin suggested in one of our telephone exchange of ideas. "I’d put my money on Lonmin being a likely takeover stock!"
In the days following the Rio Tinto -BHP talks Lonmin gained over 8%. Anglo Platinum (AngloPlat) and Impala Platinum (Implats), the two tier-one PGM players, nick-named ‘the 600-pound gorillas’, also made gains. These were a bit less frothy than for Lonmin.
Lonmin’s an old favourite bid candidate
It won’t be the first time Lonmin, the world’s third biggest platinum producer, has long been touted as a takeover target! It’s an old favourite.
Listed on the London and Johannesburg stock exchanges, Lonmin was formed out of the debris of Lonrho PLC, the empire created by the infamous (or famous) Africaphile Tiny Rowlands.
Renamed in 1999 to reflect its return to mining roots, Lonmin went through a period of restructuring and investment. The aim was to strengthen its PGM production capacity.
It was in 2004, however, that gossip about Lonmin’s future really started to gather momentum. The FT said it was experiencing an identity crisis. Others said an aggressive acquisition strategy was on the cards. Or, a possible merger. It has certainly made a few acquisitions!
Come February 2006 rumours of a takeover by a larger player sent the share price surging by 28%. Lonmin’s board had cautioned that it was in preliminary talks to sell the company. But the talks were over almost as soon as they had begun. The share price came crashing back down.
Along with the shattered dreams were those of shareholders, who were left feeling rather battered. The interested bidder then was said to be South African gold producer, Goldfields.
All-in-all, 2006 was certainly a bit of a roller coaster year for Lonmin shareholders. One slow Friday afternoon in November speculation hit the market once again. This time the money was on Xstrata or Barrick.
Again, this was not to be. In fact, in August this year Xstrata said it had indeed considered acquiring Implats or Lonmin. But had decided they were too expensive. Xstrata CEO Peet Nienaber said it had evaluated both the companies but felt it "a tall order to pay such a premium on the existing share price".
That said he was willing to fork out $1bn for smaller-fry Eland Platinum. Anyway, no one believed him and the story goes on running. There is a price for everything!
Prices are booming because everyone’s bidding
It is not a surprise that they are all at this take-over game. Platinum prices have reached highs of over $1,480/oz. Accurately predicted, we might add, by UK metals and minerals consultancy GFMS. In its 2007 Platinum and Palladium Survey it said that platinum would hit US$1,450/oz by year end.
Making the most of the boom, Implats and Lonmin, two of the three top PGM companies, have flexed their acquisitive muscles. Lonmin snapped up Canadian-listed AfriOre for R3bn in cash. Implats made an R4.2bn cash bid for London-listed junior African Platinum (Afplats).
Implats, Lonmin and AngloPlat’s have all said they want to rapidly expand production over the next five years! Developing new mines is one option, but can take decades. A quicker strategy to expand is to grow through acquisition.
... and Xstrata is a plausible aggressor
So, back to our Lonmin takeover speculation! Lonmin undoubtedly remains a potential takeover candidate. And Xstrata is a plausible aggressor. Look at Xstrata’s recent move into the sector. Xstrata has even admitted that it might want more platinum interests.
What the BHP bid for RTZ shows is that there is money out there. No one has said that it can’t be done on those grounds. Suggesting that BHP itself may make a bid for Lonmin is taking the easy way out. It looks as though any of the diversified miners could get the backing.
Other theories run along the lines that gold producers might transform themselves into "precious metals" producers. Goldfields has stated as much. And there are other synergies here too. Both Gold Fields and Lonmin are mining deeper. So they could share expertise and costs in a country where safety is increasingly important.
Barrick is another possible bidder. The world’s biggest gold producer already has platinum interest in South Africa. It may wish to expand these interests. Or, say Newmont makes an offer for Lonmin. That triggers a bidding war which sees Goldfields, Barrick, Rio Tinto, BHP Billiton and Xstrata step into the ring to fight it out.
This bid fever is catching!
Keep mining,
Erin and Isabel
