The bombshell that almost torpedoed Sibanye’s US deal
EXECUTIVES from Sibanye Gold, South Africa’s biggest gold miner, were in Los Angeles in the final stages of a roadshow with US bond fund managers last month when a bombshell hit from back home.
The government had introduced shock new rules requiring local mines to be 30 percent black-owned in perpetuity, toughening existing requirements and implying hefty dilution for shareholders. South African stocks tumbled and bond yields rose that day.
The measures, called Mining Charter 3, put at risk funding for Sibanye’s $2.2 billion (R29.42bn) acquisition of Stillwater Mining of the US, the biggest foreign takeover by a South African mining company in 16 years.
“We had to hold back the financing, find out what the charter meant, and rebrief all our potential investors,” chief executive Neal Froneman said.
“A number of institutional investors pulled out of the bond process, saying the risks in South Africa were just too high and it’s becoming uninvestable.”
Companies and investors say the new rules and uncertainty will starve the industry of much-needed capital, shortening mine lives, reducing profits and adding to existing challenges of declining reserves and increasing costs.
Most mining companies already offloaded 26 percent stakes and even entire mines to black investors at preferential rates in the 2000s to comply with previous rules, believing it was a one-time deal.
President Jacob Zuma backed the charter in parliament last month as part of his “radical economic transformation” agenda, intended to boost black participation in an economy that’s still one of the most unequal in the world, 23 years after Nelson Mandela helped end apartheid.
But members of the ANC, including Deputy President Cyril Ramaphosa, have signalled their doubts, saying the government and industry should go back to the drawing board and reach a negotiated settlement.
Mining companies have already begun fighting the charter through the courts and say the uncertainty will scare off investors in a country once seen as model of democracy, reconciliation and open markets in Africa. The first lawsuit, to block the charter while it winds through the legal process, has an initial hearing on July 18.
“We’re not going to accept it,” Froneman said. “It’s unconstitutional to abuse shareholders retrospectively.”
The legal cases “could potentially take three years to conclude,” said Victor von Reiche, an analyst at Citadel Wealth Management in Cape Town. “In the meantime, the mining