Mining group Lonmin rejected proposals that would have handed control to its dissatisfied largest shareholder, Xstrata, but instead pushed ahead with a $817-million cash call to repair its battered balance sheet.
Xstrata – under pressure as it nears the final stages of its own takeover by Glencore – said it had aimed to protect the value of its investment, a 25-per-cent stake held as a result of a failed 2008 takeover attempt.
But it also fuelled tension that has marked the four year relationship between the two companies, questioning the ability of the current Lonmin management to keep the company alive.
"Lonmin has suffered longstanding operational problems and we are concerned that the business does not have the management capabilities to ensure a sustainable future, even if short term funding issues are resolved," an Xstrata spokesman said.
"We believe our concerns are shared by other major Lonmin shareholders," he said, adding the group was open to "all constructive solutions" to strengthen management and operations.
Lonmin, which already had one of the most stretched balance sheets in the sector, was hit in September by strikes at its flagship Marikana mine which saw some of the worst violence in South Africa since the end of apartheid and left 46 people dead.
The six weeks of strikes cost Lonmin $159-million and 110,000 lost ounces of platinum, forcing the group to tap shareholders for cash.
Lonmin had been expected only to detail the terms of its heavily discounted rights issue on Friday, along with a full year loss. It surprised the market by also giving details of a reverse takeover proposed by Xstrata.
Under the proposal made last month, Xstrata would have sold its South African platinum group metals (PGM), chrome and vanadium businesses to Lonmin for shares, conditional on a $1-billion rights issue alongside, which they would underwrite.
Xstrata – which also demanded the right to appoint the chairman, the chief executive and the chief financial officer – would have ended up with 70 per cent of Lonmin.
The proposal was rejected. A source involved in the matter said Lonmin felt a premium had not been offered for control, and Lonmin had also fretted over a process that could have been lengthy and would have meant breaching the terms of its deal with lenders.
Xstrata made a separate proposal on Thursday that would have seen it support the rights issue currently planned, but replace Lonmin's executives. This has also been rejected.
"The board of Lonmin had made it clear that it would be prepared to consider any revised proposal that Xstrata wished to make on its merits; however, no revised proposal was made by Xstrata," Lonmin said.
Shares in Lonmin, already down more than 50 per cent this year, dropped more than 4 per cent in London on Friday, but analysts said the news was not negative. At 0950, the stock was down 3.6 per cent at 436.6 pence. Xstrata was down 0.9 per cent, against a 0.7 per cent drop in the sector.
"It's fairly clear that what Xstrata was looking to do was to do a deal with Lonmin at a time when Lonmin had balance sheet problems... giving Xstrata potentially a chance to get quite a good deal," Panmure Gordon analyst Alison Turner said.
"For Lonmin shareholders I take it as a positive... although Xstrata hasn't come forward to say that they would support this rights issue, they have put proposals on the table that clearly indicate that they do see value in the Lonmin asset base."
Lonmin – which has become a case study in the difficulties facing an industry pressed by low prices, rising costs and a restive labour force – said on Friday the rights issue was "imperative" – without it, the company would risk breaking the terms of agreements with its lenders.
It was not clear, however, whether Xstrata would subscribe unless its conditions were met.
The world's third largest platinum producer priced its $817-million rights issue at a discount of 44.4 per cent to its theoretical ex-rights price (TERP) of an existing share. In South African rand, the discount is 45 per cent.
It said it would issue 9 new shares for every 5 existing shares, a total of up to 365 million shares at 140 pence or 19.5 South African rand.
Lonmin also published a full-year loss of $698-million, dragged lower by $755-million of special costs, including $159-million for the costs of the strike.