Lonmin Sparks Talk Of Big Miner Consolidation

Sydney Morning Herald

Monday February 20, 2006

Jamie Freed

A NEW round of mining industry consolidation could be afoot after South African platinum producer Lonmin announced it was in merger talks on Friday.

The suitor is believed to be South African gold producer Gold Fields but analysts expect a bidding war to emerge. Shares in Lonmin immediately rose 25 per cent, giving it a market value of about #4 billion ($9.44 billion).

The news sparked a frenzy to buy into all of the major global miners - including BHP Billiton, Rio Tinto, Anglo American and Xstrata - in London on Friday.

Industry observers believe Xstrata would be the most likely of the four to bid for Lonmin. The Anglo-Swiss miner was rebuffed in attempts to buy Australia's WMC Resources and Canadian nickel miner Falconbridge last year.

BHP Billiton and Rio Tinto are known to be squeamish about buying assets in South Africa.

The operating environment in the country is more difficult than in Australia due to black empowerment rules, a rising exchange rate and a high proportion of marginally profitable, very deep underground mines.

But Xstrata isn't known to have similar qualms.

Xstrata, led by South African chief executive Mick Davis, has a large vanadium and ferrochrome alloy business in the country and last year formed a joint venture with Anglo Platinum to develop a platinum mine.

Mr Davis, a former Billiton executive, has ambitions to turn Xstrata into a top global mining house.

Last week, there was speculation that BHP could use some of its excess cash to put in a bid for the #10.7 billion Xstrata.

Therefore, Mr Davis could use the purchase of Lonmin to help fend off advances from his former employers at BHP, which merged with Billiton in 2001.

The world's third-biggest miner, Anglo American, could also be in play soon.

Anglo's share price has suffered in comparison to rivals BHP and Rio during the commodities boom.

Its assets, most of which are in South Africa, have underperformed relative to those of BHP and Rio.

Anglo is in the middle of a major restructuring program that could see nearly one-third of its assets sold off. It is expected to sell down its majority stakes in AngloGold Ashanti and Highveld Steel and Vanadium.

Anglo is also looking to demerge its Mondi paper and packaging business and to sell portions of its Tarmac building materials subsidiary.

The remaining company would have a more similar production profile to Rio and BHP and could be re-rated by the market.

London analysts believe the slimmer Anglo could also make an attractive takeover target, particularly for Rio.

© 2006 Sydney Morning Herald

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