Lonmin seeks talks with hostile suitor Xstrata

A logo of the Swiss mining company Xstrata is shown at the Headquarters in Zug March 26, 2008.

LONDON (Reuters) - The world's third biggest platinum producer Lonmin (LMI.L) rejected again on Tuesday Xstrata's (XTA.L) $10 billion takeover bid as too low, but said it wanted talks with its hostile suitor about potential synergies.

Lonmin said in a statement it was exploring options, but Chairman John Craven declined to say in an interview if other parties had approached Lonmin about a potential counter-bid.

He said the focus was on creating value for shareholders, not remaining independent.

Xstrata, which has purchased a stake of 10.7 percent in the firm, unveiled its proposed all-cash takeover offer at 33 pounds a share for Lonmin (LONJ.J) on August 6.

One reason Xstrata's proposed bid undervalued the firm was because a marriage of the two companies would result in cost savings, Craven said.

"In the case of a combination between Lonmin and Xstrata we think there could be quite significant synergies," he said.

"If Xstrata does come forward with an offer which is no longer conditional and one in a range where we might be getting somewhere close to where a deal could get done, I would hope they would find time in their busy schedules to meet."

There had been no contact between the two companies since Xstrata Chief Executive Mick Davis made a brief call the night before he announced plans for the bid and the hostile bid environment did not encourage communication, Craven said.

"The initiative rests with them... it's not exactly a climate that encourages constructive debate."

CHROME POTENTIAL?

Without discussions, it was unclear the level of cost savings and synergies, but both firms have operations in the same region of South Africa that extend beyond platinum.

"They mine chrome; we have interest in chrome assets that we have been examining ways of exploiting, and we are only about 40 miles apart," Craven said.

"If our shareholders were to accept an offer at 33 pounds or a few derisory pounds above that they would be forgoing for all time any part of that value."

Some analysts and investors have agreed with Xstrata that it could do better after Lonmin has repeatedly disappointed the market with a series of downgrades to its production outlook over the past 18 months.

Craven, however, said that the board had full confidence in Chief Executive Brad Mills and other management despite the recent cut in sales guidance for refined platinum for the current fiscal year to end September to 725,000 ounces from an initial estimate of 900,000 ounces.

"It is only a dip, we're climbing out of the other side... we have confidence in a significant improvement in production in the 2009 year, and then hitting again and surpassing the 900,000 level fairly rapidly thereafter."

An increase in 100,000 ounces in production should add 7.80 pounds to Lonmin's share price, Chief Strategy Officer Ian Farmer said in the interview.

"We believe that any acquirer should pay a reasonable price for that potential, so 33 pounds in our view is theft," he said.

In Tuesday's statement, Lonmin again branded Xstrata's bid as opportunistic since its shares had been sliding due to the

operational problems and a pullback in platinum prices.

Lonmin shares had fallen 40 percent to a low of 21.56 pounds in the 11 weeks before Xstrata announced its proposed takeover.

On Aug 6, the shares soared and have hovered slightly above 34 pounds since then, implying that investors see potential for a sweetened bid from Xstrata.

They gained 0.4 percent to 34.42 pounds by 0910 GMT, outperforming a 3.7 percent fall in the UK mining index

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Lonmin, which is being advised by Citigroup and Greenhill, also said volatile platinum prices were low when Xstrata announced its proposed offer even though the platinum market is expected to be in a deficit for several years.

"Each $100 per ounce increase in the platinum price equates to additional value of circa £2.90 per Lonmin share," it said.

(Reporting by Eric Onstad; editing by Rory Channing)