Lonrho set to focus on its mining interests

LONRHO yesterday took a major stride towards becoming a pure mining company after splashing out pounds 344m to acquire a South African coal producer and unveiling plans to buy back 21 per cent of its shares.

The two deals mark the end of a tortuous series of three-way negotiations between Lonrho, South Africa's Anglo-American corporation and the mining company JCI and were broadly welcomed in the City. Lonrho said it expected the deals to increase earnings from next year onwards.

Once Lonrho completes the demerger of its African trading business and the sale of its Princess hotels chain, the group, founded by Tiny Rowland 40 years ago, will be pared down to a pure coal, platinum and gold mining business.

Lonrho is buying the coal producer Tavistock from South Africa's JCI group for pounds 167m and merging the business with its existing Duiker coal interests to create a combined group with 5 per cent of the internationally traded coal market.

At the same time, JCI is swapping some of its gold and platinum interests for a 21 per cent shareholding in Lonrho owned by Anglo-American and then selling the stake on to Lonrho for pounds 177m. Anglo will be left with a 7.4 per cent stake. Lonrho is buying the shares for 106p each compared with a closing price yesterday of 99.5p

The Anglo shareholding originally belonged to Mr Rowland, who sold it to the German financier Dieter Bock, who in turn sold it to Anglo in 1996 as part of a strategy for Lonrho to link up with the South African conglomerate.

Shareholders are expected to vote on the two deals at an extraordinary meeting in April. This will allow time for the buy-back to be completed before Lonhro demerges its African trading interests in May, removing an overhang of stock from the market.

Once the two deals are complete, Lonrho will be a group with sales of about pounds 1bn, assets of pounds 540m and borrowings of pounds 470m. The sales of the Princess hotels chain is due to be completed by about June and is expected to raise at least $500m (pounds 300m).

Lonrho will then consist of a coal producer with annual sales of about 22 million tonnes, a platinum business with controlling interests in four mines in South Africa and a gold mining division whose principal asset is a 33 per cent stake in Ashanti Goldfields of Ghana.

One mining analyst said: "The simple fact is that they are now managing to conclude deals which they said they would. It was imperative they did this before losing all credibility."

Nicholas Morrell, Lonrho's chief executive, said the overriding objective had been to remove the overhang of shares which had dogged the company for the last 18 months. He accepted that it had been a frustrating period for shareholders - Lonrho's share price has more than halved to just over 100p in the last two years.

But he said the challenge of turning Lonrho from a collection of unrelated businesses into a focused mining company had been "pretty formidable".

All the while, Mr Rowland, who still owns 3 million Lonrho shares, has been sniping from the sidelines.

"He is a shareholder along with everyone else," said Mr Morrell. "I hope he sees the merit of these transactions and supports the resolutions at the meeting."