Johannesburg - Sibanye Gold plunged 15.31 percent to trade at R24.01 a share JSE on Friday on news that it would spend R30 billion to buy the only US palladium and platinum producer, Stillwater Mining Company.
The proposed Stillwater acquisition marked the Westonaria-based firm’s first transaction outside of South Africa after paying R4 billion for Aquarius Platinum last year and R1.5 billion to buy Anglo American Platinum’s Rustenburg operations earlier this year.
Sibanye, which was included in the FTSE/JSE Top40 index this year following the robust performance of the gold industry, said on Friday that it had reached a definitive agreement to buy the New York-listed Stillwater.
Sibanye, which was formed after Gold Fields spun off its ageing South African assets, also said its two largest shareholders, Gold One International and the Public Investment Corporation, which held 29 percent of its issued share capital, had confirmed their support of the transaction.
The parties expected the deal to be closed in the second quarter of next year.
Sibanye said it secured $2.7 billion (R37 billion) in bridge financing from global financial services group Citi and HSBC to fund the transaction and repay certain of Stillwater’s existing debt, adding that the deal was compelling.
Sibanye’s chief executive, Neal Froneman, said, following a thorough due diligence on Stillwater, the management considered the transaction to be value accretive. “The transaction represents a transformational opportunity for Sibanye to acquire high-quality, low-cost, platinum group metal (PGM) assets at a favourable point in the cycle.”
He also said it would position Sibanye’s platinum division further down the global cost curve, with the potential of further cost cuts, and it enhanced the group’s cash-flow generation and improved its access to lower-cost financing.
It said the $18 a share in cash, or R30 billion, represented a premium of 23 percent to Stillwater’s prior day closing share price, and 20 percent to Stillwater’s 20-day volume-weighted average closing share price.
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Sibanye said the deal would help expand its PGM portfolio with high-grade reserves that currently supported more than 25 years of mine life, and also provide near-term organic, low-cost growth through the Blitz Project.
“Stillwater’s Columbus metallurgical processing complex will provide Sibanye with a ‘mine-to-market’ PGM business, and the sizeable recycling operation provides a steady margin and strategic market insight,” it said.
Stillwater’s chief executive, Mick McMullen, said the transaction delivered immediate value to shareholders and recognised the value of the company’s high-grade and world-class assets.
It also recognised its PGM recycling complex, and potential for brown-field expansions through the development of its Blitz and Lower East Boulder project.
“This announcement is a testament to the significant operational and productivity improvements that Stillwater has achieved over the past several years,” McMullen said.
“Sibanye has indicated its commitment to maintaining and investing in Stillwater’s Montana operations and will look to leverage our best practices, industry-leading mining expertise and proven ability to drive improvements and efficiencies while improving safety across their entire business,” he added.
René Hochreiter, a mining analyst at NOAH Capital Markets, said there was value in the Stillwater transaction as long as the palladium price was good. “Stillwater is making money now, but if the palladium price falls to $450 to $500 an ounce they will not make money,” he said.
“Overall the deal is good, but $2.2 billion is a lot of money,” he said.