| Tue 2 Sep 2008, 8:00 | | LON - Lonmin Plc - Provides further information on the value of the Company |
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LON
LOLMI
LON - Lonmin Plc - Provides further information on the value of the Company
Lonmin Plc
(Incorporated in England and Wales)
(Registered in the Republic of South Africa
under registration number 1969/000015/10)
JSE code:LON
Issuer Code:LOLMI & ISIN:GB0031192486 ("Lonmin")
Lonmin provides further information on the value of the Company
2 September 2008
The Board of Lonmin Plc ("Lonmin" or the "Company"), advised by Citi and
Greenhill, is today publishing a document for its shareholders which provides
further information highlighting the value of the Company.
The Board continues to believe that the unsolicited, pre-conditional proposed
offer for Lonmin announced by Xstrata plc ("Xstrata") on 6 August 2008
fundamentally undervalues the Company`s unique assets, resources and reserves.
It is not in the interests of Lonmin`s shareholders, and the Board will
continue to oppose it vigorously.
If and when Xstrata comes forward with a formal offer, the Board will provide
shareholders with further comprehensive information, including long-term
production information, to enable them to properly assess the fundamental
value of Lonmin.
The Board of Lonmin continues strongly to advise shareholders to take no
action and to reject Xstrata`s approach.
Lonmin Chairman, Sir John Craven, said:
"Xstrata has for its own reasons decided that a hostile approach is the best
way of persuading Lonmin shareholders to part with their assets. The document
we are issuing today provides further information highlighting the value of
the Company. As set out in this document, based on reasonable assumptions for
rating, production and Platinum pricing, it is not difficult to see a share
price for Lonmin well above Xstrata`s GBP33 a share proposal, even before a
control premium.
"Therefore, the Board has no hesitation in rejecting Xstrata`s entirely
unsatisfactory approach which fails to reflect a proper value for the assets
and prospects of Lonmin and the synergies from which Xstrata`s rather than
Lonmin`s shareholders would benefit. We continue to explore all options to
maximise value for our shareholders."
Fundamental value of Lonmin
Shareholders should consider the following:
- Rating: Historical, long-term average enterprise value to EBITDA
multiples for Lonmin and others in the Platinum Group Metals ("PGM")
sector reflect the precious and scarce nature of these metals. Lonmin
and the PGM sector have historically traded at a premium to the bulk /
base commodity sectors. Xstrata made its approach when Lonmin`s trading
enterprise value to EBITDA multiple was at a substantial discount both to
its five year average and to Lonmin`s peers. Over the last five years,
Lonmin`s average historical enterprise value to EBITDA multiple has been
10.5x significantly above the trading multiple of 7.8x immediately prior
to Xstrata`s approach.
Just valuing Lonmin on its average historical trading multiple of 10.5x,
implies a standalone value for Lonmin of GBP32 per share, before any
premium for control(1).
- Production: Lonmin achieved Platinum sales of over 900,000 ounces in each
of the four financial years 2003 to 2006 following which in FY2007,
Lonmin started to experience operational challenges. During FY2008, as
previously reported, underground production was principally impacted by
safety related stoppages, the Eskom four day power outage in January,
high levels of absenteeism, particularly in the first half of the
financial year, and the slower than anticipated ramp up of the Company`s
mechanised shafts. Production was also affected by an increased focus on
accelerating ore reserve development to address shortfalls in prior
periods. FY2008 represents a low point in production for Lonmin and has
also been challenging for other PGM producers.
The Company has made a significant investment in future production
growth. The Board has every confidence in the production improvement
plans being put in place by its new mining management team which will
improve performance in FY2009. Thereafter, the Board is confident that
Lonmin can achieve, and improve on, previous sales levels of over 900,000
Platinum ounces per annum. The Board is preparing long-term production
information for shareholders, which underpins the fundamental value of
Lonmin, and expects to publish this at the appropriate time.
As set out in the document published today, each 50,000 ounce increase in
Platinum sales equates to additional value of circa GBP3.90 per Lonmin
share (2).
- Pricing: The long-term demand fundamentals for Platinum and other PGMs
remain positive and the Platinum market is currently in deficit and is
expected to remain so for some years. Platinum and other PGM prices have
decreased significantly very recently and have been volatile. As
recently as July 2008, Platinum prices were over US$2,000 per ounce, more
than 39 per cent. above the current price of US$1,434 per ounce (as at 27
August 2008).
As set out in the document published today, each US$100 per ounce
increase in the Platinum price equates to additional value of circa
GBP2.90 per Lonmin share (3).
- Operational leverage: A high proportion of Lonmin`s costs are fixed and
so the majority of the economic effect of any increases or decreases in
production and substantially all of the economic effect of any increase
or decrease in PGM prices flows through to profits.
- Value of currently producing asset base: The Board believes that by
considering the above factors in aggregate, shareholders will be able to
gain a fuller appreciation of the value of Lonmin`s currently producing
asset base, mainly Marikana.
- Development assets and investments: The Board believes that there is
considerable underappreciated value in Lonmin from the longer-term growth
potential of Limpopo, the development of the Akanani project and Lonmin`s
other assets and investments.
- Sustainability: Lonmin was the first Platinum major to have its
conversion application for new order mining rights approved by the
Department of Minerals and Energy. This achievement in respect of its
Marikana operations was a direct result of completion of the necessary
Black Economic Empowerment of Lonmin`s producing assets and the
investment, over recent years, in programmes to deliver safer production,
promote occupational health, mitigate the impact of HIV/Aids on its
employees, develop the diversity of the management team and partner more
effectively with the Company`s local communities. Lonmin`s ongoing
investment in these programmes is key to delivering long-term value for
shareholders.
Summary
Lonmin`s long-life, high quality, low-cost assets are extremely valuable.
Investment opportunities in the consolidated PGM sector are rare. Xstrata`s
unsolicited, pre-conditional proposed offer fails to recognise Lonmin`s
potential given both Lonmin`s attractive growth profile and the prospects for
PGMs in the future.
A share price for Lonmin significantly above Xstrata`s approach price can be
calculated by applying reasonable rating, production and Platinum pricing
assumptions, even before the addition of a control premium.
The Board of Lonmin will demonstrate through its defence that Xstrata`s
unsolicited, pre-conditional proposed offer does not reflect the fundamental
value of Lonmin`s assets.
The Board of Lonmin continues strongly to advise shareholders to take no
action and to reject Xstrata`s approach.
Note: The above illustrative sensitivities show the impact of a change in
product sales volumes and Platinum price to the value of a Lonmin share
assuming that all other factors remain constant and applying an enterprise
value to EBITDA multiple of 10.5x. In particular, in calculating these
sensitivities it is assumed that other PGM prices and currency exchange rates
remain constant. It is also assumed that 70% of costs remain fixed and are
assumed not to vary in line with sales volume, and that 30% of costs vary in
line with sales volume assuming a constant EBITDA margin. The above
illustrative sensitivities do not constitute a profit forecast. Shareholders
should consider these factors in conjunction with the explanatory notes set
out at the end of this announcement and on pages 26-29 of the document
published today.
Enquiries
Lonmin: +44 (0) 207 201 6060
Alex Shorland-Ball
Citi: +44 (0) 207 986 4000
David Wormsley
Jan Skarbek
Tom Reid (Corporate Broking)
Andrew Forrester (Corporate Broking)
Greenhill: +44 (0) 207 198 7400
James Lupton
David Wyles
JPMorgan Cazenove: +44 (0) 207 588 2828
Michael Wentworth Stanley
Jonathan Wilcox
Matthew Lawrence
Cardew Group: +44 (0) 207 930 0777
Anthony Cardew +44 (0) 7770 720 389
Rupert Pittman +44 (0) 7976 249 289
Financial Dynamics (South Africa): +27 (0) 21 487 9000
Nic Bennett +27 (0) 766 877 429
A copy of Lonmin`s document published today, dated 2 September 2008, is
available on Lonmin`s website at www.lonmin.com.
Citigroup Global Markets Limited ("Citi"), Greenhill & Co. International LLP
("Greenhill") and JPMorgan Cazenove Limited ("JPMorgan Cazenove") are acting
for Lonmin and no-one else in connection with the matters described in this
announcement, and will not be responsible to anyone other than Lonmin for
providing the protections afforded to their respective clients, or for
providing advice in relation to the matters described in this announcement.
The Lonmin directors accept responsibility for the information contained in
this announcement. To the best of the knowledge and belief of the Lonmin
directors (having taken all reasonable care to ensure that such is the case),
the information contained in this announcement is in accordance with the facts
and does not omit anything likely to affect the import of such information.
Under the provisions of Rule 8.3 of the Takeover Code (the "Code"), if any
person is, or becomes, "interested" (directly or indirectly) in 1% or more of
any class of "relevant securities" of Lonmin, all "dealings" in any "relevant
securities" of that company (including by means of an option in respect of, or
a derivative referenced to, any such "relevant securities") must be publicly
disclosed by no later than 3.30pm (London time) on the London business day
following the date of the relevant transaction. This requirement will continue
until the date on which the offer becomes, or is declared, unconditional as to
acceptances, lapses or is otherwise withdrawn or on which the "offer period"
otherwise ends. If two or more persons act together pursuant to an agreement
or understanding, whether formal or informal, to acquire an "interest" in
"relevant securities" of Lonmin, they will be deemed to be a single person for
the purpose of Rule 8.3.
Under the provisions of Rule 8.1 of the Code, all "dealings" in "relevant
securities" of Lonmin by Xstrata or Lonmin or by any of their respective
"associates", must be disclosed by no later than 12.00 noon (London time) on
the London business day following the date of the relevant transaction.
A disclosure table, giving details of the companies in whose "relevant
securities" "dealings" should be disclosed, and the number of such securities
in issue, can be found on the Takeover Panel`s website at
www.takeoverpanel.org.uk.
"Interests in securities" arise, in summary, when a person has long economic
exposure, whether conditional or absolute, to changes in the price of
securities. In particular, a person will be treated as having an "interest" by
virtue of the ownership or control of securities, or by virtue of any option
in respect of, or derivative referenced to, securities.
Terms in quotation marks are defined in the Code, which can also be found on
the Takeover Panel`s website. If you are in any doubt as to whether or not you
are required to disclose a "dealing" under Rule 8, you should consult the
Takeover Panel.
This release contains statements that are forward-looking. Forward-looking
statements are not based on historical facts, but rather on current
expectations and projections about future events, and are therefore subject to
risks and uncertainties which could cause actual results to differ materially
from the future results expressed or implied by the forward-looking
statements. Often, but not always, forward-looking statements may be
identified by the use of forward-looking words such as "plans", "expects" or
"does not expect", "is expected", "is subject to", "budget", "scheduled",
"estimates", "forecasts", "intends", "anticipates" or "does not anticipate",
or "believes" or variations of such words and phrases or statements that
contain certain actions, events or results "may", "could", "should", "would",
"might" or "will" be taken, occur or be achieved. Such statements are
qualified in their entirety by the inherent risks and uncertainties
surrounding future expectations. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of Lonmin, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such forward-looking
statements are based on numerous assumptions regarding Lonmin`s present and
future business strategies and the environment in which Lonmin will operate in
the future. Among the important factors that could cause Lonmin`s actual
results, performance or achievements to differ materially from those in the
forward-looking statements include, among others, levels of actual production
during any period, levels of demand and market prices, the ability to produce
and transport products profitably, the impact of foreign currency exchange
rates on market prices and operating costs, interest rates, operational
problems, industry trends, labour relations, political uncertainty and
economic conditions in relevant areas of the world, the actions of competitors
and activities by governmental authorities such as changes in taxation or
regulation. Other than in accordance with its legal or regulatory obligations
(including under the UK Listing, Prospectus, Disclosure and Transparency Rules
of the Financial Services Authority), Lonmin is not under any obligation and
Lonmin expressly disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Explanatory Notes:
1. Re-rating to average 5 year historical enterprise value ("EV") to EBITDA
multiple
1. Lonmin`s average 5 year historical EV to EBITDA multiple of 10.5x has
been sourced from Capital IQ and FactSet and represents the arithmetic
mean of Lonmin`s rolling daily historical EV to last twelve months
("LTM") EBITDA multiples for the 5 year period ended 5 August 2008.
2. The equity value per share of GBP32 is based on:
A.Lonmin`s reported underlying LTM EBITDA for the 12 month period ended
31 March 2008 of US$1,029m;
B.Historical EV to LTM EBITDA valuation multiple of 10.5x;
C.Net debt of US$506m and book value of minority interest of US$412m as
at 31 March 2008;
D.USD/GBP exchange rate as at 5 August 2008 of 1.955 sourced from
FactSet; and
E.Lonmin`s current total number of shares issued and outstanding of
156,379,413.
2. Movement in PGM sales
1. The illustrative 50,000 ounce ("oz") increase in Platinum sales oz is
assumed to have a consequential increase on the sales (in oz) of the
other PGMs. This consequential increase is based on the breakdown of
Lonmin`s total PGM sales oz over the LTM period, which was as follows:
LTM breakdown of PGM sales oz
Platinum 52.8%
Rhodium 7.3%
Palladium 24.6%
Gold 1.6%
Ruthenium 11.4%
Iridium 2.3%
2. The total incremental net revenue increase from an assumed 50,000 oz
increase in Platinum sales of US$129m has been calculated as the product
of the increase in sales in oz and Lonmin`s average LTM realised sales
price on a metal by metal basis, as detailed below.
Additional 50,000 oz of Platinum sales - equity value per share impact
LTM Platinum price (US$/oz) 1,381
Additional Platinum volume (oz) 50,000
Additional Platinum revenue (US$m) 69
LTM Rhodium price (US$/oz) 6,446
Additional Rhodium volume (oz) 6,868
Additional Rhodium revenue (US$m) 44
LTM Palladium price (US$/oz) 364
Additional Palladium volume (oz) 23,249
Additional Palladium revenue (US$m) 8
LTM Ruthenium price (US$/oz) 452
Additional Ruthenium volume (oz) 10,837
Additional Ruthenium revenue (US$m) 5
LTM Iridium price (US$/oz) 413
Additional Iridium volume (oz) 2,220
Additional Iridium revenue (US$m) 1
LTM Gold price (US$/oz) 743
Additional Gold volume (oz) 1,507
Additional Gold revenue (US$m) 1
Total incremental net revenue (US$m) 129
EBITDA margin % 83.9%
EBITDA impact (US$m) 108
EV/ LTM EBITDA multiple 10.5x
Increase in EV (US$m) 1,129
Increase in equity value per share (p) 393
3. The EBITDA impact of the above total incremental net revenue of US$129m
has been calculated at a margin of 83.9%. The 83.9% incremental margin
assumption has been implied from Lonmin`s LTM EBITDA margin of 46.4%, and
Lonmin management`s assumption that 30% of costs vary in line with sales
volume.
(a) Costs have been defined as revenue less EBITDA and are calculated as
53.6% of revenue. 70% of costs are assumed not to vary in line with sales
volume, and are calculated as 37.5% of revenue. 30% of costs are assumed
to vary in line with sales volume, and are calculated as 16.1% of
revenue. The 83.9% incremental margin assumption has been calculated as
the sum of Lonmin`s 46.4% LTM EBITDA margin and the 37.5% fixed costs
percentage.
(b) No impact from either cost inflation, productivity gains or a step change
in fixed costs has been assumed in the above analysis.
4. The equity value per share impact of 393p has been calculated as the
product of Lonmin`s 5 year average EV / LTM EBITDA multiple of 10.5x
sourced from Capital IQ, and the above EBITDA impact, divided by the number
of Lonmin shares issued and outstanding, and converted to GBP based on the
USD/GBP exchange rate of 1.84 as at 27 August 2008, sourced from FactSet.
3. Movement in Platinum price
1. The net revenue impact of US$81m from an assumed US$100 per oz increase
in the price of Platinum has been calculated as the product of the
incremental US$100 per oz uplift in the Platinum price and Lonmin`s LTM
Platinum sales of 808,107 oz.
2. The EBITDA impact of the change in price of Platinum is assumed to be the
same as the revenue increase, as effectively all of the economic benefits
of any increase in the price of Platinum would flow through to profits.
3. The equity value per share impact of 294p has been calculated as the
product of Lonmin`s 5 year average EV / LTM EBITDA multiple of 10.5x
sourced from Capital IQ, and the above EBITDA impact, divided by the
number of Lonmin shares issued and outstanding, and converted to GBP
based on the USD/GBP exchange rate of 1.84 as at 27 August 2008, sourced
from FactSet.
US$100 per oz increase in Platinum price - equity value per share impact
Platinum price increase (US$/oz) 100
LTM Platinum volume (oz) 808,107
Additional Platinum revenue (US$m) 81
EBITDA margin % 100.0%
EBITDA impact (US$m) 81
EV/LTM EBITDA multiple 10.5x
Increase in EV (US$m) 845
Increase in equity value per share (p) 294
Date: 02/09/2008 08:00:13 Produced by the JSE SENS Department.
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