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Lonmin's low valuation may scupper deal

Lonmin's low valuation may scupper deal
Fears that Lonmin was undervalued and would get the short end of the stick if the deal with Sibanye-Stillwater was approved mounted on Friday, fuelling speculation that shareholders would prevent the deal.

The Public Investment Corporation (PIC), the biggest shareholder in both Lonmin and Sibanye-Stillwater, is scheduled to vote on the fate of the merger in separate shareholder meetings to be held tomorrow.

Leroy Mnguni, an analyst at SBG Securities, said in a note to clients on Friday that Sibanye-Stillwater’s offer represented R11.60 a share, and the current record platinum metal group prices had helped Lonmin’s value increase by 45 percent more than the offer.

“Given the compelling indications that the pending Sibanye offer grossly undervalues Lonmin, we see an increased risk that more than 25 percent of the shareholders will vote against the offer,” Mnguni said.

Mnguni said Lonmin was worth about R35 a share if its K4 project, spare processing capacity and a concentrator plant were factored in.

Record prices for palladium and rhodium and a weaker rand have helped to boost platinum producers, including Lonmin, which has been battered by losses for years.

The PIC, which is responsible for managing R2 trillion on behalf of clients, including the Government Employees Pension Fund, declined to comment until a vote took place.

“As a matter of principle, the PIC does not publicly discuss its views on investments before a decision has been made,” a PIC spokesperson said on Friday.

The PIC is a 30 percent shareholder in Lonmin and also holds a 10.3 percent stake in diversified precious metal producer Sibanye-Stillwater, which is involved in gold and platinum production. 

Both Sibanye-Stillwater and Lonmin fell on Friday by 4.65 and 3.12 percent, respectively. Lonmin chief executive Ben Magara said last week that he still believed that the transaction continued to be in the best interest of all stakeholders.

Magara said the Lonmin Sibanye-Stillwater combination created a larger and more diversified company and was in the best interest of Lonmin shareholders and other stakeholders. The deal, which has been in the pipeline since 2017, was given the thumbs up by the Cape Town-based Competition Appeal Court earlier this month.

The court dismissed the Association of Mineworkers and Construction Union’s bid to appeal the merger which was approved by the decision by the Competition Tribunal last year, citing that it would lead to job losses.

The merger was expected to give Lonmin a lifeline after it was besieged with liquidity problems on the back of lower prices between 2014 and 2017.

Lonmin avoided a near death in 2015 after being bailed out by investors who approved a $400 million (R5.75 billion) capital raise.

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