Lonmin, the platinum miner, said that it would be willing to open talks with Xstrata about a possible takeover, but only if the £5 billion offer price was raised.

Sir John Craven, Lonmin’s chairman, set out his defence against Xstrata’s bid, but he also admitted that the company might not be independent in a year’s time.

Xstrata made a hostile offer for Lonmin, the world’s third-largest platinum producer, last month, valuing the miner at £33 a share. Sir John believed that this price was opportunistic and undervalued Lonmin, so he was urging investors to hold out for a better offer.

Sir John said: “I cannot say whether Lonmin will remain an independent company or not. We will do everything in our power to ensure that we either stay independent or, if shareholders do accept an offer, that it properly rewards them for the value of the assets we hold.”

Lonmin’s share price fell sharply in the first six months of the year, because of production problems at its South African mines and the declining platinum price. Its stock was valued at £23.19 the day before Xstrata’s offer. Lonmin believes that Xstrata has taken advantage of a period of unusually weak platinum prices to make a low offer. The price of platinum, which is used in catalytic converters for cars, has fallen from a peak of $2,240 an ounce in March to $1,387.50.

Lonmin said in its defence document that every $100 increase in the price of the precious metal was worth about £2.90 to its share price.

Xstrata’s offer comes as Lonmin struggles to meet its metal production targets. Its output has fallen from more than 900,000 ounces a year to an estimated 725,000 ounces this year, a drop caused by power shortages in South Africa, industrial action and a mechanisation project at its mines.

Lonmin said that every 50,000 ounces of additional production would increase its value by the equivalent of £3.90 a share.

Xstrata said yesterday: “We continue to believe that our proposed offer provides Lonmin shareholders with an opportunity to realise a cash premium for their investment.”

Merrill Lynch said that the Lonmin figures suggested that the company’s value would be £17 or £18 higher once platinum prices and production levels had recovered. Compared with the pre-bid price, this would value Lonmin’s stock at about £40.

Merrill’s mining analysts said in a research note: “The big issue with this document is credibility. While it is true that these assets have previously produced well in excess of 900,000 ounces of platinum per year, the current management team has not managed to deliver that level of production. The key question is to what degree should current shareholders benefit turnaround potential of the Lonmin assets.”

A number of institutional shareholders, including Standard Life, have already accepted Xstrata’s £33 offer, which has given the Anglo-Swiss miner nearly 13 per cent of its target. Other investors, including M&G, which controls 18 per cent of Lonmin’s stock, are said to be waiting to see if Xstrata increases the bid. There has also been speculation that rival bidders may emerge and Sir John indicated yesterday that he was trying to attract other offers. However, analysts believe that it is unlikely that any of the big mining groups will join the bidding.

Xstrata shares closed down 119p at £28.03 yesterday while Lonmin rose 5p to £34.35.

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