Aug. 6 (Bloomberg) -- Xstrata Plc made a hostile 5 billion- pound ($9.8 billion) bid for Lonmin Plc to double revenue from Africa and become the world's third-largest platinum producer.

Xstrata, based in Zug, Switzerland, offered 3,300 pence a share for Lonmin, 42 percent more than the company's London closing price yesterday. Lonmin called the all-cash bid ``entirely unwelcome'' as its shares rose as much as 51 percent and traded above the offer price, indicating investors expect a higher offer.

Mick Davis, Xstrata's chief executive officer, said his company will reorganize the South African mines and smelters at Lonmin, the worst performer in the FTSE 350 Mining Index during the last 12 months. Xstrata, which owns mines on four continents, spent $28 billion on acquisitions in the past six years and broke off talks to be bought by Cia. Vale do Rio Doce, the world's biggest iron-ore exporter, in April.

``Xstrata has been interested in Lonmin for years,'' John Meyer, an analyst at Fairfax I.S. Plc in London, said today in a Bloomberg Television interview. ``They have a track record of making these things work.''

Lonmin rose 1,107 pence, or 48 percent, to 3,426 pence at the close on the London Stock Exchange. The shares fell 28 percent in the year to Aug. 4. Xstrata said it raised its stake in Lonmin to 10.7 percent after buying 4.15 million shares at the offer price.

Mining M&A

Other platinum producers jumped. Anglo Platinum Ltd., the world's largest, and Impala Platinum Holdings Ltd., the second- biggest, advanced as much as 14 percent in Johannesburg. Aquarius Platinum Ltd. gained as much as 34 percent in London. There have been more than $250 billion of mining mergers and acquisitions announced this year, including the Lonmin offer. BHP Billiton Ltd. is pursuing a hostile $139 billion bid for Rio Tinto Group, in the biggest mining takeover.

There has been a ``dramatic fall-off'' in Lonmin's production, Davis, 50, said today in a telephone interview in London. ``We think that over time we can at least restore them back to where they were two years ago.''

Lonmin today cut its platinum production forecast to about 725,000 ounces for the year to Sept. 30. Safety stoppages due to accidents cut output by 10,000 ounces and a furnace shutdown deferred as much as 15,000 ounces, it said in a statement.

Output stalled also because of disputes with labor unions, which led to strikes. In April, the company slashed its production target by 9.9 percent because of repairs at a furnace. A work stoppage last year in protest over the implementation of a new payroll system also reduced output.

Glencore Stake

Xstrata, which is 34 percent owned by Glencore International AG, the world's largest commodity trader, is the biggest exporter of coal used by power stations. It mines copper in South America, nickel in Canada, zinc in Australia and smelts ferrochrome in South Africa. Lonmin, based in London, has two mines and a smelter in South Africa.

Xstrata said today first-half net income dropped 8.3 percent to $2.75 billion on lower copper and nickel production and a decline in zinc prices. That beat the $2.6 billion median estimate of six analysts surveyed by Bloomberg News. Xstrata fell 33 pence, or 1 percent, to 3,167 pence in London.

The bid values Lonmin at about $12,600 for each ounce of platinum it plans to produce in the year to Sept. 30. Anglo Platinum has a market value of about $22,600 for each of the 2.47 million ounces it mined last year.

`Opportunistic' Bid

Lonmin, led by Brad Mills, 53, said today in a statement Xstrata's bid was ``opportunistic'' and undervalues its assets. It told shareholders to take no action. Xstrata is being advised by Deutsche Bank AG and Macquarie Group Ltd. Citigroup Inc. and JPMorgan Cazenove Ltd. are Lonmin's corporate brokers.

The combined output of Lonmin and its two larger competitors account for almost 80 percent of global supply of the metal. Lonmin was barred by the European Commission from merging with Impala in 1996 and made an attempt to buy Ashanti Goldfields Ltd. in 1999.

Platinum has slumped 27 percent since trading at a record $2,301.50 an ounce on March 4. It's mostly used in catalytic converters for automobiles, which curb noxious emissions from cars and tracks. The average converter contains 4 to 5 five grams of the precious metal.

The metal accounted for 0.5 percent of Xstrata's sales in 2007. The company acquired South Africa's Eland Platinum Holdings Ltd. in November for 7 billion rand ($928 million) and today it signed an agreement with Nkwe Platinum Ltd. and Genorah Resources Ltd. to help develop a South African mine producing 1 million ounces of platinum-group-metals a year.

Coal Approval

Xstrata also said today it approved the $1 billion development of the Mangoola Coal open-cut mine in New South Wales, Australia. The mine, acquired as part of Xstrata's purchase of Centennial Coal Co. in October, will produce 10.5 million metric tons of power-station coal annually for 18 years.

Lonmin was spun off a decade ago from British industrialist Roland ``Tiny'' Rowland's Lonrho Plc. Rowland, once described by U.K. Prime Minister Edward Heath as the ``unacceptable face of capitalism,'' built Lonrho through acquisitions. Lonrho was split into platinum producer Lonrho Plc and Lonrho Africa Plc in 1998.

To contact the reporters on this story: Antony Sguazzin in Johannesburg asguazzin@bloomberg.net; Brett Foley in London at bfoley8@bloomberg.net

Last Updated: August 6, 2008 12:21 EDT