Glencore to divest 24% stake in Lonmin

Glencore is to divest its 23.9 per cent holding in Lonmin, the South African platinum producer, by handing the stake to its own shareholders.

The plan to spin off the stake by the end of June came as Glencore on Wednesday announced plans to slash spending on its mines n 2015 to between $6.5bn and $6.8bn from a previously expected $7.9bn.

Like its peers, Glencore has been hit hard by falling commodity prices. Crude oil has halved since June, while copper has dropped 20 per cent and recently hit a five and half year low.

"Responding to the volatile market backdrop, we have comprehensively reviewed the planned level of sustaining and expansionary capex in 2015," the company said.

Several of Glencore's rivals have announced plans to slash spending on new and existing mines, and more are expected to follow as the annual reporting season for the mining sector gets into full swing. Glencore said it would provide further details of its spending plans with full-year results in March.

Glencore inherited its stake in Lonmin through the acquisition of Xstrata in 2013, but Ivan Glasenberg, chief executive, has on several occasions described the holding as "non-core".

Mr Glasenberg said the decision to hand its stake to shareholders did not reflect a view on platinum or the management of Lonmin.

"As we do not trade platinum and have no special insight into the market, we believe that it is better to leave to our shareholders the decision as to how to manage the Lonmin shares," he said.

Mr Glasenberg said Glencore's senior management team, which controls around a fifth of the company, had no current plans to sell the Lonmin shares they will receive from the distribution.

Lonmin said it welcomed the decision. "Lonmin views Glencore's proposal as a constructive way forward which would enable Glencore shareholders to continue their participation in Lonmin's future," it said. Two Glencore executives appointed to Lonmin's board in 2013 would also step down, it added.

The South African group, the world's third-largest platinum producer, is suffering from low platinum prices and the financial consequences of a five-month strike in South Africa last year.

While Lonmin said its latest quarter had seen the highest output since 2011, Ben Magara, chief executive, told the Financial Times this week the company needed to "continue to tighten our belts" because of the platinum price. "We are looking at every cost," he said.

Paul Gait, an analyst at Bernstein, said Glencore's plan to divest the Lonmin stake showed the "absolute lack" of strategic buyers for "high cost platinum" producers. Anglo American is also looking to sell some of its platinum mines in South Africa but has struggled to find a buyer.

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"I imagine Ivan will have looked at all the exit routes before deciding on this one," he said.

Overall, Mr Gait said the exit strategy would be negative for Lonmin. "Even if Ivan and the senior management team at Lonmin hold on to their shares, I imagine there will be other sellers who on being given the Lonmin paper will promptly sell it," he said.

In early trading in London, shares in Lonmin were down 9.6p at 162p, while Glencore was unchanged at 270.65p. Shares in Glencore have fallen 25 per cent in the past six months.

Analysts welcomed Glencore's plan to divest its Lonmin stake and reduce spending. There have been concerns that Glencore could lose its triple-B credit rating, which is critical for its marketing, or trading, arm because of lower commodity prices.

However, the company said on Wednesday the rating had been reaffirmed by Standard & Poor's. It also said its marketing business had performed in line with guidance provided last year.

"We believe, the market will take $1.1bn-$1.4bn capex reduction positively, implying 2-2.55 per cent improvement in 2015 free cash flow," said analysts at Citigroup. "However this is a reversal of [Glencore's] capital markets day in December where they increased guidance, and suggests the slowdown in commodity prices has surprised them."

The divestment plan will be put to a shareholder vote in May.

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