Lonmin puts bid in for Southern Platinum (April 04, 2005)

Platinum producer Lonmin (LMI-L) has stepped in as a bidder for Southern Platinum (SPC-T), offering $2.66 per share to take over the junior miner.

Southern Platinum management has endorsed the bid, which values Southern Platinum at about $227 million and represents about a 15% premium over the 100-day average of the company’s shares.

The offer is conditional on having two-thirds of Southern’s shares tendered to the bidder. Including time for regulatory approval, the transaction is expected to close in about three and a half months.

A Lonmin takeover would extract the company from the restructuring exercise at its 91.5%-owned Messina Platinum subsidiary, which operates the Messina platinum group metal mine in South Africa. The company’s lenders have agreed in principle to defer requirements placed on Messina to meet financial covenants until Lonmin has completed the takeover.

Southern Platinum and Messina had been in discussions with Messina’s lenders since November to restructure existing loans and credit lines. The lending syndicate recently agreed to defer a payment of $7.5 million in principal, which had come due on Messina’s project debt. Southern Platinum advanced $4.5 million for the interest payment due at the same time and issued a million warrants to buy Southern shares to the lenders.

Lonmin is assuming an offtake agreement for Messina concentrates from Impala Platinum Holdings (IMPAF-P) for US$15 million and will deliver concentrates to Impala’s refinery until May 2006.

Lonmin also plans to investigate the economics of an expansion at Messina, which would have a budget of US$75 million. The current capacity is 45,000 oz. platinum per year plus 41,000 oz. of other platinum group elements and gold. The expansion would bring annual platinum production to 75,000 oz.