Xstrata CEO Mick Davis wrote to the chairman of Lonmin to notify him of Xstrata’s decision to support Lonmin’s proposed rights issue. At the same time, letter also asks that changes 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,” said Davis. “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 recapitalization of the business is required. However that recapitalization must be backed by a suitable management team and business plan.
“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,” said Davis. “We will, therefore, be seeking change to the board and management promptly following completion of the rights issue.”