Sibanye hopeful on pre-payment to lighten its R23bn debt burden

● All eyes will be on Sibanye-Stillwater in the next two months as the company tries to conclude a “streaming” deal involving prepayment under fixed terms. It hopes this will cut down its debt to about R13-billion depending where the rand is.

The company took on the debt when it bought US-based palladium mine Stillwater in 2017 and investors have been anxious about how CEO Neal Froneman plans to slash the company’s debt given the fast deteriorating conditions of its South African gold assets, halts in production due to safety stoppages, the strong rand, and weak gold and platinum group metal (PGM) prices.

While the market has been expecting another rights issue to raise capital to reduce the group’s R23-billion debt, Froneman was still adamant the company was not going to go that route and that the streaming deal would help.

Ideally, the company would be comfortable with its debt at R10-billion.

Streaming is when a company, such as Sibanye, makes a deal with a buyer to supply them with metal for a particular period. In exchange, Sibanye gets prepayment for its metal from the buyer. The deal can be structured on the basis of a fixed amount of metal supplied or a fixed time frame. A key part of such a deal for Sibanye is to secure an upfront payment of $500-million (about R7billion) to service its debt.

At its current debt levels, Sibanye was probably paying at least 5% interest on its debt, which is about $100-million a year, said Peter Major, analyst at Cadiz Corporate Solutions.

At the peak of its debt AngloGold was paying about $200-million interest a year.

“It’s a lot of interest and it’s going to keep them focused,” Major said. The company was in advanced talks with two companies, down from three, and would conclude the streaming deal with the company that offered the best terms, a source said.

Major said Sibanye was probably playing two or three streaming companies against each other.

He said though he believed a rights issue was a better option than streaming, “their shareholders don’t want it”.

Froneman admitted that the ship to do a rights issue had sailed when the company could not raise more than $1-billion from its shareholders for the acquisition of Stillwater in 2017.

Speaking at the company’s investor day on Tuesday, Froneman said the $500million streaming deal being negotiated would help the company reach a gearing level of 1.5 times from the current 2.4. However, analysts were still not entirely convinced about the streaming deal, with some saying streaming was a liability in itself.

Sibanye and the company it signs a deal with will both lose out if there were to be an uptick in commodity prices as the sale of metals, in terms of the deal, will be at a fixed price.

Froneman said: “The stream is on the US business and the US business produces platinum, palladium, then gold and some base metals as by-products. It’s ‘streaming’ about 5% of the US production.”

The gold and base metal by-products will probably be what the company will sell in the streaming deal, Major said.

Froneman would have to sell metal that does not make a sizeable contribution to Sibanye’s PGM business, such as platinum and palladium, otherwise shareholders would take issue.

Froneman was confident the streaming deal would be a “pleasant surprise” to the market and hoped it would raise the company’s share price, which has slumped by about 40% since the beginning of the year.

Key part of deal is to secure upfront remittance of $500m