Lonmin eyes Limpopo deal with Shanduka

Lonmin, the world's third-largest platinum producer, has agreed to a deal which could involve South African group Shanduka investing 1.1 billion rand ($137 million) for control and management of its Limpopo division.

Shanduka has been offered the option of carrying out a feasibility study on the viability of its operating and developing the Limpopo division, Lonmin said on Monday.

If the outcome were successful, Shanduka could raise funds and subscribe to 50 percent plus one share in Lonmin unit Messina Platinum Mines Ltd.

"It looks like a positive thing for Lonmin. It gives them some cash and black economic empowerment credits, both things which they need," said Leon Esterhuizen, an analyst with RBC Capital Markets in London.

Lonmin said the deal with Shanduka, chaired by politician-turned-businessman Cyril Ramaphosa, would help it meet mining charter targets that aim for 26 percent of the mining industry to be black-owned, but would also help it focus on key Marikana operations.

"A small but canny deal by Lonmin, which extracts value from a small and non-core asset," Liberum Capital said in a note.

"(The cash injection) for Lonmin from Shanduka will come at an opportune time since at current PGM prices we believe its balance sheet out to 2015 is set to come under scrutiny."

Esterhuizen said it remained to be shown whether the deal was feasible. "Shanduka is getting a good deal because they are not paying a high price for that asset, but the question is whether it will work now, in this cost and price environment."

Costs are a growing problem for miners in South Africa as companies face pressure from rising raw material and labour costs, a strong rand, and uneven output.

Platinum was trading at $1,512 an ounce at 0810 GMT.

Lonmin's Limpopo division includes the Baobab mine, where development activities have recently restarted after the asset was put on care and maintenance in 2009 following the global financial crisis.

The companies said it may take 12-15 months to close the deal.

Lonmin shares were down in both London and Johannesburg in early trade on Monday, with analysts attributing the moves to general market volatility, with most mining stocks lower.