Xstrata plc CEO Mick Davis has written to the Chairman of Lonmin plc to notify him of Xstrata’s decision to support Lonmin’s proposed rights issue and subscribe in full for its rights. But the letter also sets out Xstrata’s requirement for changes to be made to the board and management of the Company promptly after completion of the rights issue.
“As a significant Lonmin shareholder, we are concerned about the destruction of value of our shareholding. For two years we have sought to address the strategic and operational challenges that Lonmin faces. Given the dire financial position of Lonmin, we concur that a substantial recapitalisation of the business is required. However that recapitalisation must be backed by a suitable management team and business plan.” Davis wrote.
He said while it was open to Xstrata to vote against the rights issue at the forthcoming Lonmin general meeting, such a vote by Lonmin’s largest shareholder would, in all likelihood, have prevented the rights issue from proceeding.
“As a responsible shareholder, we want Lonmin to begin its recovery from this difficult time as soon as possible and it is not our intention to bring about an unnecessary failure of the rights issue. We do not wish to contribute further uncertainty to Lonmin’s position that may further impede operational performance and delaying the proposed rights issue could run the risk that market conditions or other factors prevent a successful rights issue in the future.
“However, we also have a duty to our shareholders and we cannot passively lend our financial support to a strategy that we believe is flawed. We will, therefore, be seeking change to the Board and management promptly following completion of the rights issue. We have asked Lonmin’s board to engage and co-operate with major shareholders to commence this process, refresh the Board, strengthen the management team and overhaul the current business plan so that a realistic strategy to restore shareholder value can be developed.
“An assurance in this regard from the Lonmin Board would provide shareholders with greater comfort and likely lead to greater take-up of the rights issue by core shareholders. This would also obviate the need for us to call a further general meeting of shareholders to make the changes we believe necessary.”
Lonmin reacted within two hours to the letter with a statement saying it would consider the views of all shareholders.
"The board continues to abide by the highest standards of corporate governance and will reflect on the comments made by all shareholders during the rights issue process," it said.
It added that prior to Xstrata's decision to support its refinancing plan, some 86% of the proxy voting instructions received were in favour of the resolution to approve the rights issue.
"Lonmin welcomes the support announced today from Xstrata for its forthcoming rights issue," it added.
