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News Release
Lonmin provides shareholders with further information
on its rejection of Xstrata’s Pre-conditional Offer
13 August 2008
Lonmin Plc
4 Grosvenor Place
London
SW1X 7YL
United Kingdom
T: +44 (0)20 7201 6000
F: +44 (0)20 7201 6100
www.lonmin.com
Introduction
The Board of Lonmin Plc (“Lonmin” or the “Company”), advised by Citi and Greenhill, is today
giving shareholders further information about why the unsolicited pre-conditional offer for the
Company by Xstrata Plc (“Xstrata”) is an opportunistic attempt to acquire Lonmin at a price
which undervalues the Company’s assets and business.
If and when Xstrata comes forward with a formal offer, the Board will provide shareholders with
comprehensive information to enable them to properly assess the relative attractions of this
opportunistic approach and the true value and wealth creating potential of Lonmin.
In the meantime shareholders should appreciate that:
Lonmin has a total mine life in excess of 100 years with 156.3 million PGM ounces in
reserves and resources 1
Lonmin is the lowest-cost integrated producer of PGMs in the Bushveld
Lonmin is one of only three integrated mine-to-market PGM businesses and benefits from an
integrated business model with sophisticated downstream processing technology
New and experienced Lonmin operational management team is in place and improving
performance
Lonmin will benefit from its recent investment in mechanisation
Lonmin has outstanding growth prospects, both in the shorter-term from a recovery in
production from 2008’s low point and in the longer-term from exploiting the full potential of
Marikana and the development of its Akanani and Limpopo projects
Lonmin Chairman, Sir John Craven, said:
“Mining companies should be valued on their long-term fundamentals. Xstrata has admitted that
it has long coveted Lonmin’s long-life, high quality, low cost assets. This opportunistic proposal
is an attempt to acquire Lonmin’s assets cheaply and capitalise on the expected improvement in
our mining and processing performance. It comes immediately following the recent decline in the
platinum price and the offer, if and when made, represents no more than the price Lonmin’s
shares traded at as recently as six weeks ago.
“This pre-conditional offer fails to recognise our growth potential given both the ounces we have
in the ground and the long term demand for PGMs in the future. It is not in the interests of our
shareholders and the Board will continue to oppose it vigorously.
“Shareholders are urged to take no action in respect of the approach by Xstrata and are strongly
advised to reject the offer.”
1
Life of mine calculation based on 156.3 million PGM ounces (3PGE + Au) of mineral reserves and resources, taken from Lonmin’s
mineral resource and reserves statement as at 30 September 2007 and updated to include the latest Akanani mineral reserves and
resource statement dated 29 April 2008, divided by Lonmin FY07 total PGM production of 1,490,184 ounces
1
Lonmin has extensive and high quality South African ore reserves and resources within
the world’s premier PGM deposit
PGM resources are scarce: Lonmin has 156.3 million PGM ounces (3PGE + Au) including
91.7 million platinum ounces of reserves and resources in the ground
2
Lonmin has a total mine life in excess of 100 years
Both of Lonmin’s key properties, the existing Marikana mine and the Akanani development,
are large, high quality ore bodies
Lonmin’s average mining depth at Marikana is shallow, compared to its peers, making
mining more cost effective
Lonmin is the lowest-cost integrated producer of PGMs in the Bushveld
Lonmin benefits from favourable supply demand dynamics in PGMs
Positive long term demand fundamentals for platinum and other PGMs
Platinum market is expected to remain in deficit, driven by:
o demand growth from tightening global emissions legislation and an increase in
automotive demand, particularly in emerging markets; and
o well publicised industry supply constraints in South Africa, which accounts for
approximately 77% of global platinum supply
New and experienced Lonmin operational management team is in place and improving
performance
Mining – Experienced operational mining team led by Chris Sheppard, Executive Vice
President, Mining in place and well advanced in implementing detailed work plans to
optimise mining extraction and maximise Lonmin’s value
Process Division – Management team, led by Theuns De Bruyn, Executive Vice President,
Process Division, upgraded and focused on stable operations and recovery improvements:
o Number One furnace is operating consistently in 2008 compared to previous years
and the re-design, planned for implementation in November 2008, will further
improve availability and mitigate risk
o concentrator recoveries already starting to improve with underground recoveries up
from 79.3% to 82.4%, during the third quarter of financial year 2008 compared to the
comparable prior year period; and
o programmes in place to increase the base metal refinery throughput and improve
recoveries at the precious metals refinery
Shared Services – New President, Lonmin South Africa, Mahomed Seedat in place and
focused on driving effective service delivery
Finance – Team focused on efficient capital allocation and cash flow management under the
guidance of experienced CFO, Alan Ferguson
Delivery of operational improvements is expected to accelerate over the next year
2
Life of mine calculation based on 156.3 million PGM ounces (3PGE + Au) of mineral reserves and resources, taken from Lonmin’s
mineral resource and reserves statement as at 30 September 2007 and updated to include the latest Akanani mineral reserves and
resource statement dated 29 April 2008, divided by Lonmin FY07 total PGM production of 1,490,184 ounces
2
Lonmin benefits from an integrated business model with sophisticated downstream
processing technology
Lonmin is one of only three integrated mine-to-market PGM businesses, which:
o provides a significant barrier to entry and competitive advantage; and
o has allowed Lonmin to establish strong long-term relationships with key industrial
consumers of PGMs – this also brings valuable insight into future customer demand
trends
Lonmin has 40MWs of installed smelting capacity with recent investments in capacity,
delivering increased operational flexibility
Lonmin’s Number One furnace is specifically designed to process high-chrome
concentrates
Lonmin has invested in new condition-monitoring technology at its smelter
Lonmin will benefit from its recent investment in mechanisation
Mechanisation will deliver real safety, cost and productivity benefits:
o creates a safer working environment with fewer employees exposed to risk;
o enhances production through fewer safety related mining shutdowns; and
o reduces exposure to future South African wage inflation
Mechanised mining already accounts for approximately 12% of underground Marikana ore
mined during the third quarter of the 2008 financial year and will continue to grow
Lonmin has invested in, and supported, the development of innovative extra low profile
(XLP) equipment which is designed for use in the narrow seams typical at Marikana
Lonmin has outstanding growth prospects
Lonmin shareholders stand to benefit from the long-term growth potential of the business,
and in the shorter-term, from a recovery in production from the low point of 2008
Marikana:
o operational improvements to optimise mining extraction and maximise Lonmin’s
value are being executed by the new and experienced mining management team;
o shaft sinking completed at K4 shaft - ore reserve development commenced;
o Pandora JV: Lonmin has completed a pre-feasibility study on a stand alone project to
develop a 2.9 million total tonnes per annum conventional mining operation; and
o Marikana smelting capacity allows for growth to around 1.2 million platinum ounces
per annum
Northern Bushveld (Akanani and Limpopo):
o 46.1 million PGM ounces in reserves and resources at Akanani and Limpopo 3 ;
3
PGM ounces (3PGE + Au) of mineral reserves and resources at Limpopo and Akanani, taken from Lonmin’s mineral reserves and
resource statement as at 30 September 2007 and updated to include latest Akanani mineral resource and reserves statement of 29
April 2008
3
o the high quality deposit at Akanani, with its wide ore body, will allow Lonmin to grow
significantly over the next decade;
o pre-feasibility study for the first phase of the Akanani project to be completed shortly;
o extensive drilling programme at Akanani resulted in a positive increase in ore grade
in April 2008;
o Lonmin has completed a pre-feasibility study for Limpopo Phase 2, indicating a
production rate of around 4.3 million tonnes per annum; and
o Lonmin is planning a northern smelting and refining complex to service both Akanani
and Limpopo where geographical proximity offers economies of scale;
Lonmin’s portfolio of investments and exploration programmes provides additional growth
optionality
Xstrata’s pre-conditional offer is opportunistic
The approach comes following a recent decline in Lonmin’s share price and the broader
PGM sector and is:
o below the price at which Lonmin’s shares were trading as recently as 30 June 2008;
and
o below Lonmin’s volume-weighted average price over the last 18 months
Before the approach, Lonmin, as well as other major PGM producers, was trading at
valuation multiples materially below long term average multiples
Before the approach, the median analyst target price for Lonmin, which does not include any
takeover premium, was approximately £35 per share
The approach comes immediately following the recent decline in the platinum price, which
does not reflect the favourable long-term supply demand balance in PGMs
Lonmin has an extensive programme of operational improvement that is being implemented
by the new and experienced operational mining management team; Xstrata is seeking to
capture these benefits which would otherwise accrue to Lonmin’s shareholders
Lonmin is the only London-listed mine-to-market pure-play platinum producer; it is a unique
company with world-class assets and strong growth prospects which Xstrata should not be
allowed to acquire for anything less than a fair and appropriate value
Conclusion
Xstrata’s pre-conditional offer is an attempt to acquire Lonmin’s assets at a price that does not
reflect fair value for Lonmin shareholders. This offer fails to recognise Lonmin’s growth potential
given both the ounces Lonmin has in the ground and the long term demand for PGMs in the
future. The Board of Lonmin continues strongly to advise shareholders to take no action in
respect of the approach by Xstrata and to reject the offer.
4
Enquiries
Lonmin: +44 (0) 207 201 6060
Alex Shorland-Ball
Citi: +44 (0) 207 986 4000
David Wormsley
Jan Skarbek
Tom Reid (Corporate Broking)
Andrew Forrester (Corporate Broking)
Greenhill & Co.: +44 (0) 207 198 7400
James Lupton
David Wyles
JPMorgan Cazenove (acting as Corporate Broker): +44 (0) 207 588 2828
Michael Wentworth Stanley
Jonathan Wilcox
Matthew Lawrence
Cardew Group: +44 (0) 207 930 0777
Anthony Cardew +44 (0) 7770 720 389
Rupert Pittman +44 (0) 7976 249 289
Financial Dynamics: + 27 (0) 21 487 9000
Nic Bennett +27 (0) 766 877 429
5
Citigroup Global Markets Limited (“Citi”) and Greenhill & Co. International LLP (“Greenhill”) are acting for Lonmin and no one else in
connection with the matters described in this document, and will not be responsible to anyone other than Lonmin for providing the
protections afforded to their respective clients, or for providing advice in relation to the matters described in this document..
Under the provisions of Rule 8.3 of the Takeover Code (the “Code”), if any person is, or becomes, “interested” (directly or indirectly)
in 1% or more of any class of “relevant securities” of Lonmin, all “dealings” in any “relevant securities” of that company (including by
means of an option in respect of, or a derivative referenced to, any such “relevant securities”) must be publicly disclosed by no later
than 3.30 pm (London time) on the London business day following the date of the relevant transaction. This requirement will
continue until the date on which the offer becomes, or is declared, unconditional as to acceptances, lapses or is otherwise withdrawn
or on which the “offer period” otherwise ends. If two or more persons act together pursuant to an agreement or understanding,
whether formal or informal, to acquire an “interest” in “relevant securities” of Lonmin, they will be deemed to be a single person for
the purpose of Rule 8.3.
Under the provisions of Rule 8.1 of the Code, all “dealings” in “relevant securities” of Lonmin by Xstrata or Lonmin or by any of their
respective “associates”, must be disclosed by no later than 12.00 noon (London time) on the London business day following the date
of the relevant transaction.
A disclosure table, giving details of the companies in whose “relevant securities” “dealings” should be disclosed, and the number of
such securities in issue, can be found on the Takeover Panel’s website at www.thetakeoverpanel.org.uk.
“Interests in securities” arise, in summary, when a person has long economic exposure, whether conditional or absolute, to changes
in the price of securities. In particular, a person will be treated as having an “interest” by virtue of the ownership or control of
securities, or by virtue of any option in respect of, or derivative referenced to, securities.
Terms in quotation marks are defined in the Code, which can also be found on the Takeover Panel’s website. If you are in any doubt
as to whether or not you are required to disclose a “dealing” under Rule 8, you should consult the Takeover Panel.
This document contains statements that are forward looking. Forward-looking statements are not based on historical facts, but rather
on current expectations and projections about future events, and are therefore subject to risks and uncertainties which could cause
actual results to differ materially from the future results expressed or implied by the forward-looking statements. Often, but not
always, forward-looking statements may be identified by the use of forward-looking words such as "plans", "expects" or "does not
expect", "is expected", "is subject to", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate",
or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "should",
"would", "might" or "will" be taken, occur or be achieved. Such statements are qualified in their entirety by the inherent risks and
uncertainties surrounding future expectations. Such forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of Lonmin, or industry results, to be materially
different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such
forward-looking statements are based on numerous assumptions regarding Lonmin's present and future business strategies and the
environment in which Lonmin will operate in the future. Among the important factors that could cause Lonmin's actual results,
performance or achievements to differ materially from those in the forward-looking statements include, among others, levels of
actual production during any period, levels of demand and market prices, the ability to produce and transport products profitably, the
impact of foreign currency exchange rates on market prices and operating costs, interest rates, operational problems, industry trends,
labour relations, political uncertainty and economic conditions in relevant areas of the world, the actions of competitors and activities
by governmental authorities such as changes in taxation or regulation. Other than in accordance with its legal or regulatory
obligations (including under the UK Listing Rules and the Disclosure and Transparency Rules of the Financial Services Authority),
Lonmin is not under any obligation and Lonmin expressly disclaims any intention or obligation to update or revise any forward-
looking statements, whether as a result of new information, future events or otherwise.
The Lonmin directors accept responsibility for the information contained in this document, except that the only responsibility
accepted by them in respect of the information relating to Xstrata, any of its subsidiary undertakings and the directors of any such
entity and/or any such subsidiary undertakings, which has been compiled from published sources, is to ensure that such information
has been correctly and fairly reproduced and presented. Subject as aforesaid, to the best of the knowledge and belief of the Lonmin
directors (having taken all reasonable care to ensure that such is the case) such information is in accordance with the facts and does
not omit anything likely to affect the import of such information.
6
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