Sibanye’s takeover of Lonmin steams ahead
SIBANYE-STILLWATER is forging ahead with its R5-billion all-share takeover of world number three platinum producer Lonmin despite dramatic falls in both firms’ share prices in 2018.
The deal, which took the market by surprise in December and thwarted advances by Northam Platinum to cherry-pick some of Lonmin’s assets, will save tens of thousands of jobs at the financially distressed Lonmin, which could be forced into business rescue or liquidation if the transaction fails.
The Lonmin deal and the purchase of two other local platinum operations by Sibanye is being closely watched by Mineral Resources Minister Gwede Mantashe, who said recently: “I want to see the experiment of Neal Froneman [Sibanye CEO] in platinum for my own interest. He comes from the Harmony model in gold mining where there is a lean management structure and there’s a lot of emphasis on the mines. I want to see how that works in platinum. I suspect it will work.”
So far in 2018 shares in Sibanye and Lonmin have fallen 28% each, in line with a broader malaise in the JSE’s platinum and gold mining sectors.
Sibanye’s market capitalisation is 10 times that of Lonmin’s R2.8-billion, a remarkably small figure for the world’s third-largest platinum miner.
The audacious bid for Lonmin remains fully backed by Sibanye’s board, said James Wellsted, Sibanye’s spokesman, reaffirming the rationale for a transaction that would give the gold and platinum group metals mining company not only additional mines and future projects but, most importantly, ownership of a large platinum group metal smelter and refining complex.
Sibanye, which is straining under a hefty net debt load of at least R23-billion, will not have to raise any capital for the deal.
Sibanye argues it can realise R1.5-billion in savings by incorporating the Lonmin assets into the neighbouring Rustenburg mines it bought in two separate deals by buying the whole of Aquarius Platinum and a mining cluster from Anglo American Platinum (Amplats). Sibanye has realised R1.03-billion in savings in the 14 months to end-December 2017 by merging Amplats’s Rustenburg mines and Aquarius.
Of the Lonmin savings, R730-million a year would be realised by closing the company’s London and Johannesburg offices, delisting the company from the stock exchanges in both countries and sharing services and procurement across the three platinum operations within Sibanye, Froneman said during a presentation to the European Gold Forum at the end of April.
Lonmin has to start cutting 12 600 people from its 32 512-strong workforce over three years as old, unprofitable mines are closed, raising the ire of the unions in an area that is a hotbed of unrest and poverty.
In 2013, the company employed 38 000 people. As Froneman and Lonmin chief executive Ben Magara have said, the alternative is to have the entire workforce out of a job if the deal fails and the banks call in their loans from Lonmin, which has breached its nowsuspended debt covenants pending the finalisation of the Sibanye deal.
Critical to the transaction is the approval of the Public Investment Corporation, which invests government pension funds. It holds 30% of Lonmin and CEO Daniel Matjila has expressed unhappiness with Lonmin’s performance.
There is too much riding on the transaction for it to fail, but while the boards of both companies are keen for it to succeed, Sibanye shareholders may baulk at taking on a debtladen Lonmin, putting tremendous pressure on that company’s management to deliver cost cuts and cash flow to deliver a debt-neutral company by the end of 2018.
The alternative is to have the entire workforce out of a job if the deal fails