Sibanye and Lonmin an interesting couple

That Sibanye Gold and Lonmin are in talks that are well advanced and fairly close to being concluded confirms that deal-maker supremo Neal Froneman and his team are not coy about their platinum ambitions.

Lonmin is the world’s thirdlargest platinum producer and it is about to be overtaken by Sibanye when it concludes the $2.2bn Stillwater Mining deal.

Lonmin’s share price is a fraction of the price tag on the Stillwater deal, closing at $584m last week. As one market commentator points out, there’s a reason for that.

Stillwater has a very high grade and low costs and is advancing a growth project. Lonmin, on the other hand, has marginally profitable mines, with no spare cash to invest in its partly built K4 mine, which would be a low-cost mine and has pressing social issues to deal with, such as funding or building accommodation for 11,500 of its 25,000 employees in a lowprice environment that has persisted for the past eight years.

If the rand price for platinum group metals remained low, it could do “irreparable” damage to the industry in SA, the world’s largest source of primary metal, Lonmin CEO Ben Magara said last week.

Could Sibanye be waiting for things to become more difficult at Lonmin and pick up all or part of the company more cheaply? One thing is clear, Lonmin is fully aware its processing plants are running well below capacity of 1-million ounces a year now that it has lowered its production target to 650,000 ounces.

Lonmin is scouting around for as much material as it can to put through its smelter and refinery to cut costs.

In the meantime, Magara, who cut his teeth in coal, and Froneman, a gold-mining veteran, are sensible enough to look for opportunities at their neighbouring mines; mine boundaries on a map don’t reflect the ore bodies below. Either way, Sibanye and Lonmin will be doing business, either combined or around mineral rights.

There has been a rather pronounced spike in aluminium specialist Hulamin’s share price in the past few weeks. The latest price spurt — just ahead of the release of a trading statement on Monday — prompted dark mutterings about improper dealing.

Perhaps some perspective is needed, though. Hulamin issued an initial trading statement in October, suggesting earnings would be significantly higher than the previous year.

Monday’s trading statement is obviously more specific in terms of an earnings range, but investors already had an inkling that the bottom line would be fairly robust for the year to end December 2016.

Here’s a theory that might mute the cries of insider trading. Let’s assume a large institution has been offloading its Hulamin shares, which would weigh on the share price. And let’s assume that the institution has recently dropped the last line of its Hulamin stock, removing the overhang from the market.

Would such a development — coupled with the reasonable certainty that trading was markedly better for financial 2016 — not readily trigger a spike in Hulamin’s depressed share price?

Obviously, it won’t be easy to placate investors who resisted snapping up Hulamin stock at the 500c level. Let’s see what transpires, but some circumspection is always useful in these emotional matters.