Southern Platinum receives takeover bid from Lonmin
2005-03-22 08:25 MT - News Release
Mr. Patrick Evans reports
LONMIN PLC AND SOUTHERN PLATINUM CORP ANNOUNCE A CASH BID BY LONMIN TO ACQUIRE SOUTHERN PLATINUM
Southern Platinum Corp. and Lonmin PLC have entered into an agreement pursuant to which Lonmin will offer to acquire the outstanding common shares of Southern Platinum for a cash consideration of $2.66 per common share. The offer values Southern Platinum at $190-million (U.S.).
The board of directors of Southern Platinum has, upon the recommendation of a special committee of its directors established to consider the Lonmin offer, unanimously approved the Lonmin proposal and will recommend that shareholders accept the offer. The board and officers of Southern Platinum have agreed to tender their shares to the offer. Southern Platinum's financial adviser, RBC Capital Markets, has advised the board that the consideration being offered under the Lonmin proposal is fair from a financial point of view to Southern Platinum shareholders.
"The offer by Lonmin provides Southern Platinum shareholders with a premium for their investment, payable in cash," said Brad Mills, chief executive officer of Lonmin. "It also alleviates concerns about their company's uncertain operations and financial position. Discussions have been held with Southern Platinum's bankers who have agreed to consider granting deferment in the event of Messina being in breach of financial covenants until the conclusion of the acquisition by Lonmin."
The benefits of the Lonmin offer for Southern Platinum shareholders include:
a 39-per-cent premium over the closing share price on Nov. 23, 2004, the last trading day prior to Southern Platinum's announcement that it was in continuing discussions with its lenders to arrange the restructuring of the Messina project debt facility and that, in parallel, Southern Platinum was in discussions with various other parties, including major platinum companies, to replace or eliminate its syndicated project debt facility;
a 100-per-cent cash consideration and low transaction execution risk; and
a solution to the operating and financial risks facing Southern Platinum and its shareholders.
"The board of directors of Southern Platinum has pursued and considered several investment and financing alternatives to address Messina's current debt service obligations and short-term working capital deficiencies and has concluded that the offer from Lonmin is in the best interests of Southern Platinum and its shareholders," said Dr. Christopher Jennings, chairman of Southern Platinum.
Southern Platinum owns 91.5 per cent of Messina Ltd., a company listed on the JSE securities exchange. Messina Ltd. operates the Messina platinum mine on the eastern limb of South Africa's Bushveld complex, approximately 250 kilometres from the Lonmin platinum operations. The Messina lease area has a strike length of 23 kilometres with an attributable platinum group metal (PGM) resource of about 20 million ounces (5PGE+Au).
Current mining operations at Messina are under way on a strike length of four kilometres and, in 2004, Messina produced about 86,300 ounces of 5PGE+Au, of which platinum production is estimated at 45,000 ounces. Lonmin sees potential for Messina's platinum production to rise to 75,000 ounces per year. In the opinion of Lonmin, sustained production at this level will require additional expenditure of about $75-million (U.S.) over a period of three years on shaft deepening, underground developments, mechanized mining and processing capacity. After the completion of the acquisition, Lonmin plans to examine the viability of additional production from the remainder of the Greater Messina resource base.
Lonmin also announces that it has reached an agreement with Impala Platinum Holdings Ltd. (Implats) to acquire the Messina concentrate offtake contract for $15-million (U.S.) in cash plus deliveries of fixed quantities of metals in concentrate to Implats for approximately 16 months from Feb. 1, 2005, conditional on the successful acquisition of Southern Platinum. Lonmin expects to smelt and refine Messina concentrate from mid-2006 onward.
Lonmin is capitalized at $2.8-billion (U.S.) and has proven expertise in platinum mine management in South Africa. Benefits of the transaction for Lonmin include:
an improvement in the near-term performance of the Messina mine through the application of Lonmin's financial resources and extensive operating skills;
removal of smelting value leakage through the purchase of the offtake contract from Implats;
considerable synergies through smelting the higher copper/nickel Messina concentrate at Lonmin platinum operations and through rationalization of head office costs; and
future growth through the maximization of the Greater Messina resource base.
The total cost of the acquisition of Southern Platinum will be $263-million (U.S.), composed of the equity value of $190-million (U.S.), acquired debt of $58-million (U.S.) and the Implats contract of $15-million (U.S.). Lonmin will finance the acquisition using existing banking facilities. While this will result in higher debt, increasing gearing to 43 per cent, Lonmin expects its interest cover to remain at more than 10 times, a level with which the board is comfortable in the current environment. The transaction is expected to be both earnings and cash flow accretive from fiscal 2007 onward when the benefits of smelting the Messina concentrate will fully accrue. In both fiscal 2005 and 2006, it will be marginally dilutive to earnings and cash flow excluding amortization of goodwill and transaction costs.
At Sept. 30, 2004, Southern Platinum had net assets of $148-million (U.S.). It reported an EBITDA (earnings before interest, taxes, depreciation and amortization) loss of $10-million (U.S.) and a net loss after tax of $26-million (U.S.) in the nine months to Sept. 30, 2004. Southern Platinum reported a positive operating profit at Messina for November, 2004. Industrial action during the current quarter has negatively impacted Messina's production buildup and cash flow.
The transaction will be subject to customary conditions including that a minimum of 66-2/3 per cent of Southern Platinum shares, on a fully diluted basis, are tendered to the takeover bid. The agreement between Southern Platinum and Lonmin provides that a break fee of $6-million will be payable to Lonmin in certain circumstances. The transaction is also subject to regulatory requirements in both Canada and South Africa. The offer document is expected to be filed with the Canadian securities regulators and mailed to shareholders within 15 business days. Regulatory approval and completion of the transaction is expected within 90 days after the filing of the offer.
Lonmin is being advised by BMO Nesbitt Burns Inc., as lead adviser, and JPMorgan Cazenove Ltd.
Southern Platinum is being advised by RBC Capital Markets.
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