Making a splash in the platinum sector yesterday was South Africa-focused Lonmin (LSE:LMI), one of the world’s largest primary producers of platinum-group metals (PGMs).
The reason? Gary Nagle, CEO of Glencore Xstrata’s (LSE:GLEN) Alloys Division, and Paul Smith, head of strategy and communications at Glencore Xstrata, have been made non-executive directors of the company.
While executive appointments don’t always garner much attention, the news from Lonmin is attracting notice because some analysts believe it indicates that Glencore Xstrata is gearing up to take over the company.
Writing for the Financial Times, Bryce Elder notes that last year, before its merger with Glencore, Xstrata “failed at least twice” to take control of Lonmin, in which it held a 24.5-percent stake. If Lonmin had agreed, the companies’ platinum and alloys assets would have been brought together.
Instead, Xstrata was rejected and brought its stake in Lonmin with it when it merged with Glencore. As mentioned, some market watchers now believe that the new company may be ready to take another crack at a takeover — UBS analysts, for instance, commented, “[t]he potential merger of these assets has been a possibility. We believe focus on this may be renewed by today’s appointments [of the board members], especially given they are from Glencore Xstrata’s alloys and strategy divisions.”
However, not everyone is so sure of that outcome.
They also point out that some in the analyst camp think that Lonmin’s falling production, along with the “industrial unrest” surrounding the company, will deter Glencore Xstrata from remaining a long-term investor. For instance, analysts at Liberum expect Glencore Xstrata will sell its stake in Lonmin or “divest it to shareholders,” according to Wilson and Hume. “While the two appointments bring useful skills to Lonmin’s board, we expect Glencore’s rhetoric to remain the same, in that the Lonmin stake does not have a part in Glencore’s business model,” the analysts also said.
For its part, Lonmin has given no indication that a takeover is nigh. Roger Phillimore, chairman of the company, simply commented, “I am pleased that we are developing a constructive working relationship with Glencore Xstrata, our largest shareholder. We recognize the potential for Lonmin from harnessing Gary and Paul’s undoubted skills and strong track record. I believe they both will be able to help us create value for all our shareholders within a strong governance framework.”
Watch wage talks
While waiting for Lonmin’s future to become more clear, investors would do well to keep an eye on the company’s wage negotiations in South Africa.
Midway through August, Lonmin signed a recognition accord with South Africa’s Association of Mineworkers and Construction Union (AMCU), averting the union’s threatened strike action and clearing the way for wage talks in the process, The Globe and Mail reported at the time. However, as Mining Weekly points out, the accord, which recognizes the AMCU as Lonmin’s majority union — pushing aside the National Union of Mineworkers (NUM), Uasa and trade union Solidarity — led Solidarity to threaten strike action on the basis that Lonmin had “reward[ed] unrest and penalis[ed] responsibility.”
If, as Wilson and Hume suggest, Glencore Xstrata is likely to be deterred by unrest at Lonmin’s operations, these negotiations may be key in determining whether the company goes in for the kill or casts Lonmin away.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.