Selling it forward the best option for Sibanye

Sibanye-Stillwater has joined a growing list of mining companies that sell forward a portion of their future production to secure funding to tackle debt or complete projects. Sibanye was one of those companies labouring under a heavy debt burden, with net debt of R23bn, some R6bn more than its market capitalisation.

It was one of the factors behind the halving of its share price in 2018 as investors and analysts fretted that the company would have to issue shares to raise capital in a heavily discounted and dilutive rights issue.

CEO Neal Froneman had repeatedly said a rights issue was not on the cards. He has also said raising money through bonds or other debt instruments was too expensive and one of the objectives in the capital raising was to remove debt from Sibanye’s balance sheet and reduce interest repayments.

The streaming deal with the US’s Wheaton Precious Metals, which provides $500m cash upfront, means Sibanye will hand over all its gold production now and into the future to Wheaton, as well as a tiny percentage of palladium from the Sibanye platinum group metals mines in the US.

It doesn’t have to pay cash to Wheaton. All it has to do is mine metal and deliver it to Wheaton for the rest of the lives of its mines that it has in operation now and those it will build in the future. Sibanye will give up nearly $40m of value annually from its US mines in the next decade and into the future.

But as Wheaton CEO Randy Smallwood says, the mines will generate fantastic profits. This was the best solution for Sibanye and its shareholders.

The remarkable thing about the spat between Trencor and a few small shareholders is that it has been left to those shareholders to challenge a situation that beggars belief in shareholder capitalism.

The small shareholders, led by Chris Logan, want the Trencor board to remove bizarre provisions in Textainer’s bylaws. Trencor owns 48% of Textainer, which until a few years ago was the world’s largest container lessor. Textainer is registered in Bermuda and listed on the New York Stock Exchange.

The provisions drive a coach and horse through the essence of shareholder capitalism, which is all about agents (the board and the executive) managing a business on behalf of its owners (the shareholders). For this system to work, a basic requirement is that the shareholders are able to hold the board and executives to account if they are not performing adequately. If the shareholders fail to do this, there’s a good chance the underperforming company will be prey to a hostile takeover bid.

The problem for Trencor shareholders is that the provisions reduce the ability to hold executives accountable and make a hostile takeover almost impossible. This sheltered environment means there is little incentive for Textainer executives to push for profitability.

What is surprising is that Trencor directors Hennie van der Merwe and David Nurek, who sit on the Textainer board, seem happy to tolerate the situation. Also surprising is that institutional shareholders Old Mutual, Coronation, Investec and the PIC seem happy to tolerate it. They should be leading this charge, not Logan.