[miningmx] — GLOBAL diversified miner Xstrata has taken an impairment charge of
$514m against its 24.6% stake in platinum producer Lonmin, an asset it is likely to
dispose of should it go ahead with its proposed merger with Glencore International.
Releasing interim results on Tuesday, Xstrata said it has reassessed its valuation of
the stake and recorded the impairment in the wake of Lonmin’s 2012 interim
results, released in July, and the platinum producer’s subsequent downward revision
of future production.
Xstrata in August 2008 took advantage of a fall in platinum prices to buy a 10.7%
stake in Lonmin before the financial crisis overtook its plans to launch a £33/share
takeover of the company; but not before it had snapped up another 14%-odd for
just under £20/share.
Lonmin was trading at £7.57/share on the LSE on Tuesday (R96.63 on the JSE) with
a market capitalisation of £1.5bn.
At Xstrata’s results presentation, an analyst asked CFO Trevor Reid what the basis of
the $514m write-down was, given that a mark-to-market formula hadn’t been used.
The current real market value of Xstrata’s Lonmin stake would be around £370m, or
$580m.
“What we’ve looked at is the outlook for Lonmin on a standalone basis, given their
guidance in terms of their growth projects and existing operations,’ Reid said.
“When we bought the stake, we had the perception that we’re ultimately going to
move to a controlling position and that we could accelerate a number of those
projects and the growth of the operations themselves.
“[Now] we have to be guided on what Lonmin can do as a standalone company and it
has become very pertinent, given the state of the platinum industry in South Africa
and given the liquidity in Lonmin’s balance sheet, that a number of those projects
were going to be delayed, and growth in the company was going to be delayed.’
Lonmin said in July it would rein in its capital expenditure 40%, and was weighing
the refinancing of its balance sheet amid poor pricing conditions. As a result,
platinum production at annual rate of 750,000 oz would remain static until the end
of next year, at least.
Analysts predict a merged Glencore-Xstrata entity would ditch the Lonmin stake
altogether, given the fact that PGMs don’t have an obvious fit within Glencore’s
trading activities.
