Sibanye streaming deal is double-edged sword

As a way to understand the true nature of a streaming deal in the mining industry, one instructive measure would be to quickly compare the tangible book value per share (BVPS) of the companies involved. The BVPS of gold companies is about six times its share price on average.

The most valuable streaming company, Franco-Nevada, on the other hand, trades about 25 times tangible BVPS.

In the world of mining, the streaming company is the same as the bank in the casino; they don’t lose. So news that Sibanye-Stillwater has concluded a streaming deal for $500m is something of a double-edged sword.

One way of looking at a streaming deal is to think of it as you would a bond issued to a distressed bank. The bank is betting it can trade its way out of its problem and is prepared to give away some of its financial upside to back that bet.

But should shareholders celebrate or mourn?

In Sibanye’s case, the streaming deal has two immediate benefits. It means a thumping cash call is now off the cards. And it has the breathing room to trade its way out of its current state at a more leisurely pace. But the cost is also extreme, as you would expect when cutting a deal with the casino’s bank.

The company itself estimates that the price of gold and palladium would have to rise by 27% to match the company’s cost of debt. Analysts suggest it will cost the equivalent of around a 6% interest rate per year at current spot prices.

Throw all these aspects into the mix, the fact that Sibanye’s share price didn’t move much on Monday from its parlous state is probably a fair reflection of the pros and cons of the deal.

Net1 CEO Herman Kotze says he’s counting the days to September 30 when his company’s contract to distribute social grants ends.

And there we were thinking Net1 and its subsidiary Cash Paymaster Services (CPS) were intent on holding on to that controversial contract — so intent that a number of parliamentary portfolio committees as well as the Constitutional Court had to be dragged in to prise it out of CPS’s hands.

The grim reality is that the woes of the South African Social Security Agency (Sassa) are unlikely to end with the end of CPS’s direct involvement in the social grant contract. In part this will be CPS’s fault. Despite its denials, there are persistent reports that CPS officials are interfering with efforts by Sassa and the South African Post Office to migrate 2-million grant recipients to Sassa/Post Office. But it is also down to prolonged poor management at Sassa and the Department of Social Development.

Meanwhile, CPS has succeeded in growing the customer base of its Easi-Pay-Everywhere account. Estimates are that it has signed on 3-million customers, many of whom are grant recipients who have switched to the EPE cards and might now struggle to access the new gold Sassa cards.

Sassa is adamant the old white Sassa cards will be phased out by the end of September and is pushing hard to get recipients to switch to the new ones. Kotze is equally adamant the old cards will work for as long as government deposits grants into attached accounts.