Sibanye to raise $2bn in debt, equity for Stillwater

Sibanye Gold’s shareholders now hold the company’s platinum ambitions in their hands, with a vote next week to approve a $2.2bn cash purchase of North America’s palladium and platinum producer Stillwater Mining.

Sibanye cleared the last regulatory obstacle in the US, meaning both companies can now go to their shareholders to vote on the takeover by the South African company.

Sibanye, which is 20% Chinese owned, said on Tuesday it had received “unconditional approval” from the Committee on Foreign Investment in the US for the takeover.

Sibanye outlined its plans to secure $2bn towards repaying a $2.65bn bridging loan to buy Stillwater, a deal that will push it into third place in the global ranking of palladium producers and make it the fourth largest platinum group metal producer.

Sibanye will ask shareholders on April 25 to vote in favour of the deal and for the company to issue $1bn worth of shares to help repay the bridging loan underwritten by a syndicate of 16 local and international financial institutions.

The bridging loan is equivalent to R35bn compared to Sibanye’s market capitalisation of R31bn on Tuesday, while the purchase price is R29bn.

“Buying a company that increases your precious metal output by 20% for a value equal to your own market cap remains a bad deal,” said an analyst speaking on terms of anonymity.

However, shareholders were most likely to give their approval for the deal, the analyst said.

“The deal is going through. Enough people believe this is strategically important, to get a base outside SA or die with SA, and that it’s even important enough to pay a dear price for it now, while you still can,” the analyst said, suggesting there could be a government clampdown on money leaving SA for offshore investments.

Sibanye’s shares have gained 39% since unveiling of the transaction last December.

Sibanye will secure another $1bn in debt, most likely via a bond towards repaying the loan. The rights issue and the debt will be secured by the end of June.

The $650m rump of the bridging loan will be raised by either entering a streaming

arrangement, which essentially entails securing cash upfront from a third party in exchange for part or all of future metal production, bank debt, convertible bonds or a rights issue before the end of 2017.

“Streaming is nothing good. Ask any gold company that has done a streaming deal over the past 10 years and just look at the ratings of the streaming companies relative to the gold producers to see where the value of those deals lies,” said an analyst, who declined to be named for company policy reasons.

Sibanye CEO Neal Froneman has spoken repeatedly of a fourth platinum transaction in SA to give the company refining capacity. The most likely target is Lonmin, which has mines bordering those of Aquarius Platinum, a company Sibanye bought when it launched its platinum strategy in 2016.

Lonmin shares are the worst performing of the major platinum producers, down 42% in the past 52 weeks, giving it a market capitalisation of R5.4bn.

Strategically, Lonmin is cashstrapped and has not invested in its mines in recent years.

Sibanye’s true target if it bought Lonmin would be its refining plant, giving it a highly sought-after mine-to-market capacity in SA that Froneman has spoken of in the past.

With Stillwater, which is primarily a palladium producer, Sibanye will have refining and marketing capacity in the US as well as a strategically important recycling division.