Platinum miner Lonmin is leading the FTSE 250 risers in the wake of Monday's shareholder approval for its $817m cash call.
After violent strikes in South Africa hit production and weakened its finances, Lonmin asked shareholders to stump up the finance to reduce its debt and repair its balance sheet. Near 25% shareholder Xstrata, whose own investors have just approved its proposed merger with Glencore, expressed doubts about Lonmin's management but eventually backed the deal.
So Lonmin's shares have risen 32p to 306p (traded now without the entitlement to the rights), on relief its finances are on a more secure footing. Analyst Alison Turner at Panmure Gordon issued a buy note with a 506p price target:
With balance sheet uncertainty now addressed we believe this provides an excellent entry point for new investors.
Whilst Xstrata ultimately gave its support to Lonmin's rights issue, it raised concerns over what it called the "destruction of value" at Lonmin. Xstrata has urged Lonmin to "engage and co-operate with major shareholders" to "refresh the Board, strengthen the management team and overhaul the current business plan." Xstrata has indicated that in the absence of such a process initiated by Lonmin is may call a general meeting to force such a process.
Whilst the power struggle with Xstrata may be an unwelcome distraction for management, fundamentally we believe it is of little significance for other investors. Clearly Lonmin cannot continue to operate indefinitely with an interim chief executive, however we believe the interim structure in place is sufficiently robust to ensure the assets continue to be well managed until either Ian Farmer [currently on sick leave] is sufficiently well to return to work or an alternative permanent chief executive is appointed.
