Lonmin puts bid in for Southern Platinum (March 22, 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. It offers about a 15% premium over the 100-day average of Southern Platinum shares.

The offer is conditional on having two-thirds of Southern’s shares tendered to the bidder. The two companies see the transaction closing in about three and a half months, including time to get regulatory approval.

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 and Messina had been in discussions with Messina’s lenders since November to restructure existing loans and credit lines. The lending syndicate had agreed at the end of February to defer a payment of $7.5 million in principal, which had come due on Messina’s project debt. Southern advanced $4.5 million for the interest payment due at the same time and issued a million warrants to purchase 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 about May 2006.

Lonmin also plans to investigate the economics of an expansion at Messina, which would have a budget of about US$75 million. Current capacity of 45,000 oz. platinum per year, plus another 41,000 oz. of other platinum-group elements and gold; the expansion would bring annaul platinum production to 75,000 oz.