Jeremy Warner's Outlook: Mick Davis takes opportunistic tilt at Lonmin

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The Independent Online

The last remnants of the house that Tiny Rowland built, Lonmin, looks as if it is heading into the hands of Mick Davis's Xstrata. If not Xstrata, it will be someone else now that Mr Davis has broken cover with a £33 a share offer. Lonmin is right to reject what is plainly a sighting shot. As one of only three major platinum producers worldwide, Lonmin has a scarcity value that ought to command a higher price, though the company has done its defence no favours by last night sneaking out what was in effect a fresh profits warning.

But first, a little history. Lonmin is the last recognisable bit of Lonrho (an amalgam of the original London & Rhodesian), the conglomerate assembled by the swashbuckling financier Tiny Rowland and once famously referred to by Ted Heath as the "unacceptable face of capitalism". MrRowland always promised to break it up, but could never quite bring himself to do so. In any case, his battle with Al Fayed over Harrods eventually became so all absorbing that it must have gone plain out of his mind.

In the end, he brought in Dieter Bock, a mild-mannered German hotelier and property developer, as a 16 per cent shareholder in the belief that he'd recruited a patsy who would allow Tiny to carry on running Lonrho as the personal fiefdom it always had been. Mr Bock proved anything but.

One of his first actions as chief executive was to sell Mr Rowland's beloved Observer newspaper, a disposal that so infuriated Mr Rowland that the two barely spoke again.

Lonrho was eventually stripped down to its core South African platinum interests and, like everyone else in mining, has in recent years been sitting pretty as the commod-ities boom gathered pace. Just lately, the platinum price has been falling again, allowing Mr Davis to nip in with an opportunistic bid. The £33 a share he's offering may be a near-50 per cent premium to the closing price on Tuesday night, but it is 25 per cent lower than the shares were trading at a year ago and also quite a bit lower than they were as recently as June.

Lonmin has had production problems in South Africa – last night the company issued its fifth production downgrade this year and also admitted to outages at one of its key furnaces. Heading into a downturn, demand for platinum, particularly from the auto industry, may become depressed. But in the long term, you have to be of the view that demand for the stuff will keep growing.

Mr Davis is as canny an acquirer of natural resources as they come, having built up Xstrata virtually from scratch into the mining goliath it is today in just eight short years. If he's willing to pay £33 a share, then the company must be worth more. Some shareholders aren't taking the chance, and have already sold him more than 10 per cent of the company. Lonmin to disappear into the bowels of today's new generation of corporate empire builders? Tiny Rowland will be turning in his grave.

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