Gold Fields, the South African gold company, on Monday attempted to play down expectations that it would strike a merger with Lonmin, the UK-listed platinum miner.
Executives at Lonmin could not be reached for comment on Monday. But a person close to Lonmin confirmed that talks with Gold Fields had taken place, and suggested other mining companies might be interested in the company. “There have been talks between Gold Fields and Lonmin, but there have been others as well.”
Xstrata, the UK-listed diversified mining group, has in the past expressed an interest in entering the platinum market. A source close to Xstrata said on Monday that the company always kept an eye on several potential bid targets. But he noted it was an expensive time to buy a platinum company, as prices for the metal have soared to more than $1000 an ounce.
Following a 25 per cent jump in its share price, Lonmin announced on Friday that it “has had preliminary discussions which may or may not lead to an offer for the company”.
Lonmin’s announcement - and the FT’s subsequent identification of Gold Fields as its discussion partner - took the South African gold company by surprise. It is understood that Lonmin’s announcement was part of Lonmin’s wider strategy to find a buyer for itself.
Gold Fields declined to comment on Monday. A source close to the company said on Sunday that “Gold Fields haven’t made an offer [for Lonmin] and are not about to.”
A person familiar with the situation again confirmed on Monday that the companies had held talks on some form of corporate activity, apparently with the approval of Gold Fields’ board. “Talks have been ongoing informally for the past few months,” the source said. Gold Fields’ board had signed off on a mandate “not to conclude a deal, but to take matters forward,” the source added.
Lonmin, which is the world’s third largest producer of platinum, has been seen as a takeover target for some time. When Brad Mills took over as chief executive in 2004 he tried to diversify the group’s interests away from platinum and away from South Africa, where all of its mines are located. But shareholders objected, and told him to stick to platinum, as the stock was performing well on the back of the rising platinum price.
The platinum price, and Lonmin shares, have both since risen to record highs, and Mr Mills seems to have changed his strategy to one of selling Lonmin.
“Brad Mills has wanted to put Lonmin ‘in play’ for a long time,” a person close to the talks said. “By putting out the announcement, Lonmin used Gold Fields to their advantage,” he added.
Industry participants have noted that an overture to one of South Africa’s platinum producers was overdue. News that Lonmin was ‘in play’ might prompt a bid for the platinum company from a third mining concern and scupper Gold Fields’ overture, another industry insider said.
Lonmin shares closed down 2 per cent, or 58p, at £26.13 on Monday.
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