Court­ing a scep­ti­cal mar­ket

At Sibanye Gold’s re­cent year-end re­sults pre­sen­ta­tion, CEO Neal Frone­man tried his best to con­vince an­a­lysts that the Still­wa­ter deal was not a mis­take, say­ing the mar­ket ‘has not un­der­stood the true value’ of the takeover.

Finweek English Edition - - THE WEEK -

sibanye Gold CEO Neal Frone­man could hardly con­ceal his frus­tra­tion with the per­for­mance of the firm’s share price, which has roughly halved in the past 12 months and is not per­form­ing as well as other gold stocks on a rel­a­tive ba­sis. It cur­rently has the gold and plat­inum firm val­ued at R24.2bn.

“Our div­i­dend is big­ger than An­gloGold [Ashanti],” said Frone­man in an in­ter­view with fin­week, adding that An­gloGold’s mar­ket cap is cur­rently around R60bn. “I un­der­stand we are in a rights is­sue pe­riod where we’ve got an over­hang, but post the rights is­sue, I would ex­pect very sig­nif­i­cant uptick in our share price.”

The rights is­sue, in which some $1.3bn (R16.3bn) will be raised, is to pay for the firm’s takeover of Still­wa­ter, a large US-based plat­inum and pal­la­dium firm, which Frone­man said ought to win share­holder ap­proval around April. Sibanye had also taken the ef­fort of brief­ing sev­eral of its share­hold­ers about the deal, in­clud­ing the Pub­lic In­vest­ment Cor­po­ra­tion, and found them to be sup­port­ive.

The view of an­a­lysts is that Still­wa­ter is such a gamechanger that it’s hard to get vis­i­bil­ity of Sibanye un­til the dust has set­tled.

The strate­gic plan

Yet Frone­man still used a con­sid­er­able part of the firm’s year-end re­sults pre­sen­ta­tion at the end of Fe­bru­ary to go through the ba­sics of the deal as if to court favour of his strate­gic plan with the mar­ket. “The mar­ket has not un­der­stood the true value of Still­wa­ter,” he said. “This is a low-cost pro­ducer which will es­tab­lish us as one of the top three plat­inum and pal­la­dium pro­duc­ers in the low­est cost quar­tile,” he said.

The crit­i­cism of an­a­lysts, though, is that Sibanye didn’t turn to fur­ther con­sol­i­da­tion in the SA plat­inum sec­tor first, choos­ing in­stead to fo­cus its at­ten­tion on Mon­tana where Still­wa­ter is lo­cated. “We know

“Post the rights is­sue, I would ex­pect very sig­nif­i­cant uptick in our share price.”

CEO of Sibanye Gold Still­wa­ter doesn’t have syn­er­gies in that way,” replied Frone­man. “That’s not the deal we wanted to do.” In any event, Sibanye is pur­port­ing to al­ready have a fourth deal lined up in the plat­inum sec­tor, which will make it a mine-to-mar­ket in­te­grated plat­inum group metal pro­ducer, the de­tails of which Frone­man was re­luc­tant to dis­cuss. “What’s the fourth deal?” an an­a­lyst asked. “I can’t tell you what I was re­fer­ring to, but we’ve got a fourth step in the strat­egy,” he said. “Once the bal­ance sheet is in po­si­tion there is a fourth step that will take us from mine to mar­ket in SA. Will it hap­pen in two or even nine months? I don’t know,” he said, adding that were this deal to be con­sum­mated, Sibanye would be con­strained to do any more plat­inum deals ow­ing to “com­pe­ti­tion is­sues”. The first two steps in the strat­egy were the pur­chase of Rusten­burg Plat­inum Mines from An­glo Amer­i­can Plat­inum for about R4.5bn base case and the R4bn cap­ture of Aquarius Plat­inum.

Not con­vinced on Still­wa­ter

The view of an­a­lysts is that Still­wa­ter is such a gamechanger that it’s hard to get vis­i­bil­ity of Sibanye un­til the dust has set­tled. The rights is­sue is ex­pected to take place in the third quar­ter. At the same time, there’s ques­tions of how Sibanye will tackle its cap­i­tal ex­pen­di­ture chal­lenges given a de­cline in the rand gold

Neal Frone­man

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