Lonmin, the world's third-biggest platinum producer, rejected a hostile takeover bid by Xstrata, the acquisitive UK-Swiss mining group, yesterday, insisting that the of $10bn (£5bn) cash offer undervalues the company's "unique assests".
The hostile move pushed up Lonmin shares by 1107p, or nearly 50%, to £34.26 at the close of dealing on the London Stock Exchange.
"This is an opportunistic and entirely unwelcome attempt to acquire Lonmin at a price which undervalues its unique assets," Lonmin said.
The London-based company urged shareholders not to sell, adding it would make further announcements shortly.
Analysts said Lonmin would struggle to fend off a hostile takeover unless another bidder came to the rescue.
Xstrata, which is based in the Swiss city of Zug, offered $33 for each Lonmin share, which it said was a 42% premium over Tuesday's closing price. Xstrata bought 8% of Lonmin's shares late Tuesday, while they were valued at £23.19, well off a 52-week high of £37.83.
The offer came as Xstrata reported profits of $2.75bn in the first half of the year. The results represent an 8% drop in profits compared to the year-earlier period.
Xstrata chief executive Mick Davis said the bid for London-based Lonmin "marks the next step in our strategy to develop a significant platinum business and add further scale and diversification to our portfolio."
Davis said his company wanted to reorganise the South African mines and smelters at Lonmin, the worst performer in the FTSE-350 Mining index during the last 12 months. Xstrata, which owns mines on four continents, spent $28bn on acquisitions in the past six years.
Brazilian-based Companhia Vale do Rio Doce, the world's biggest iron-ore exporter, tried to take over Xstrata earlier this year but talks broke down in April.
Platinum is used in jewelry and for catalytic converters in automobiles. Expectations of growing demand in China for the precious metal led prices to surge from about $1225 per troy ounce a year ago to $2250 per ounce in February. Prices have since tumbled to less than $1600.
All of Lonmin's mines are in the Bushveld region of South Africa, where 77% of the world's platinum is extracted.
Lonmin has struggled to fully exploit its mines and the recent high platinum price, Xstrata said.
Analysts at brokers Seymour Pierce said Xstrata already had a sizeable business in South Africa with experience of mining on the Bushveld through its chrome operations.
They added in a research note: "A strong technology division may be able to improve performance at Lonmin's mines."
Xstrata said it would fund the Lonmin takeover out of its own reserves and through bank debt. No regulatory hurdles are expected, it said.
Shares in Xstrata ended the session 34p down at £31.66 - a loss of 1% - in London trading.
There have been more than $250bn of mining mergers and acquisitions announced this year, including the Lonmin bid. BHP Billiton is pursuing a hostile $139bn bid for Rio Tinto Group. If completed, the BHP-Rio deal would be the biggest mining takeover yet.
