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Thursday August 7, 7:04 PM Lonmin says to contest Xstrata bid vigorously Photo: Reuters Click to enlarge LONDON (Reuters) - South Africa-focused platinum producer Lonmin said on Thursday it would vigorously contest a $10 billion bid approach from miner Xstrata , but gave little sign of what steps it might take in its defense. Swiss-based Xstrata said on Wednesday it was planning a 33-pounds-a-share ($64.54) bid for Lonmin, the world's No.3 platinum producer, to diversify its business from industrial metals such as copper. Although at a 42 percent premium to Lonmin's closing share price on Tuesday, Lonmin said the proposal was far too low after the shares have lost a third of their value since May. "This is an opportunistic move by Xstrata which attempts to capitalize on the current volatility in financial and metal markets. Lonmin will contest this approach vigorously," Chairman John Craven said in a statement. "It undervalues Lonmin's unique business and fails to deliver appropriate value for Lonmin's shareholders." The takeover battle is the latest in a mining industry where cash-rich companies are battling to gain control of scarce supplies to serve soaring demand, particularly from China. Sector leader BHP Billiton is battling to buy No.2 Rio Tinto , while Xstrata itself recently attracted takeover interest from Brazil's Vale . Analysts are divided whether Xstrata needs to bid more, with some seeing little chance of a counterbidder and pointing to Lonmin's succession of recent operational setbacks. On Wednesday, Lonmin cut its forecast for refined platinum sales for the year ending September for the third time. It now sees sales of 725,000 ounces, down 6.5 percent from its previous target and compared with its initial forecast of 900,000 ounces. "They need to talk about the long-term growth and value within the business and what they could do to turn around the business," said Numis Securities analyst Simon Toyne. "But I think they're going to find it difficult as there have been increasing problems for at least two years." A Lonmin spokesman declined to say what detailed steps the group was considering in defense of the bid from Xstrata. By 6:59 a.m. EDT, Lonmin shares were down 0.6 percent at 34.05 pounds, but still above Xstrata's bid proposal, suggesting some investors think there will be a higher offer. Xstrata shares were up 1.1 percent at 32.03 pounds. LIMITED OPTIONS Spot platinum has fallen about 30 percent from a record high of $2,290 an ounce in March on fears of an economic downturn in general, which has hit all mining stocks, and worries in particular of a slowdown in demand from catalysts to cut vehicle emissions, a key market for the metal. Seymour Pierce analyst Asa Bridle said there were good grounds for arguing that both platinum and equity markets are taking a short-term view of demand prospects. "Longer-term in autos, you've got so many big markets coming on stream with emissions legislation in place, and in mature markets emissions legislation is getting tighter and tighter." Some analysts, factoring in a rebound in the platinum price, believe Lonmin could be worth about 45 pounds a share. But Liberum Capital's Michael Rawlinson said that, about from hoping for a price recovery, Lonmin's options were limited. "Can they do anything operationally? No, I guess they're doing all they can... Can they sell anything? No. Buybacks? No. So it's about getting another bidder who's prepared to pay more and I just can't see anyone who's going to do that," he said. Analysts think major diversified miners will be wary of buying a labor-intensive, operationally challenged business such as Lonmin, although some have suggested gold companies such as Canada's Barrick Gold or U.S. rival Newmont , or Chinese investors, might be interested. But Rawlinson was skeptical and said that even if the gold producers were interested, they would not be able to pay cash. Deutsche Bank and Macquarie are advising Xstrata while Citigroup and Greenhill are advising Lonmin. (Additional reporting by Eleanor Wason) (Editing by Louise Ireland)