Lonrho plots African expansion

Once renowned as the vehicle for controversial tycoon Tiny Rowland’s corporate manoeuvres, AIM-quoted Lonrho Africa is in the throes of another strategic realignment. David Lenigas, the Australian resource-focused entrepreneur who became chief executive officer in December, wants to take the company back to its roots by ‘re-establishing a significant presence in the continent of Africa’.

As a first step, Lonrho has agreed to pay £5 million for a ten per cent stake in Brinkley Mining, which holds the rights to 162 square miles of uranium and molybdenum-bearing land in South Africa’s Karoo region, some 280 miles north-east of Cape Town. Brinkley, which is itself poised to float on AIM, is ‘likely’ to have between 41 and 83 million lbs of uranium and from 23 to 47 million lbs of molybdenum on its land, according to an independent report by SRK Consulting.

Uranium, coming back into favour as the source of newly-rehabilitated nuclear power, is trading at nearly $40 (£23.5) a lb and molybdenum, a key ingredient of stainless steel, is being sustained by Chinese and Indian demand at around $20 a lb. With ore grades said to be encouraging, SRK says Brinkley’s deposits have an ‘in-ground’ value, before capital and extraction costs, of between £1.25 and £2.35 billion.

Ten per cent of that would be several times Lonrho Africa’s present AIM value of £32 million. But Brinkley’s minerals are by no means the only shot in Lonrho’s locker.

For much of the time since its de-merger from platinum group metals producer Lonmin, the company has been a fairly lacklustre performer, with an assortment of African interests, from plantations to hotels and motor dealerships. Most of these have been divested – including a Toyota franchise sold for £3 million before Lenigas came on board and last month a Kenyan hotels company, which realised £17 million.

Lenigas, who is scathing about the price accepted for the Toyota franchise, wants Lonrho to invest in areas outside mining, although, as a director of entrepreneurial coal group Asia Energy, that is where much of his own experience lies. With £20 million in the kitty from disposals ‘and access to plenty more’, he intends to steer the company into oil and gas, luxury hotels, infrastructure projects and tourism.

Lenigas argues Africa, despite its recent wars and famines, is entering a new era, with Zimbabwe’s Robert Mugabe one of the last relics of the bad old days. He points to the millions available for infrastructure development and tourism projects from international agencies and argues abundant opportunities now exist.

Lonrho’s stated policy is to take ‘substantial’ shareholdings in quoted or private companies so that it can influence their decisions, though smaller stakes are not ruled out. While still seeking to dispose of its remaining ‘residual assets’ from the old days, the company will also participate in joint ventures for appropriate projects.

Lenigas, who recently recruited Ambrian Partners’ mining analyst Emma Priestley to Lonrho’s board, says he has set his sights on building the company into a group with a £1 billion balance sheet. Among those hoping he can pull it off is Blakeney Management, which claims to be one of the largest foreign investors in sub-Saharan Africa and the Arab World.

Blakeney holds around 38 per cent of the company through different funds. Miles Morland, a Blakeney director, has another 13 per cent and asset-minded corporate gadfly Peter Gyllenhammar holds a chunky stake.

Results for the year to September ’05 revealed pre-tax profits of £2.2 million (£4 million) from a total turnover of £5.8 million (£10.1 million). Yet the figures offer little guidance to current prospects.

Lonrho Africa put in a lamentable stock market performance in its old guise, falling from 20p five years ago to 9p in 2004. Signs of possible new life have brought them back
up to 20.5p, where they are a speculative buy.

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