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Sibanye dips 20% on platinum deal

Dec 11 2016 06:14
Justin Brown

Sibanye Gold’s shares dropped nearly 20% on Friday as investors fretted that the company was paying too much when it announced that it had agreed to buy US platinum and palladium producer Stillwater Mining for about R30 billion.

Investors were also concerned about Sibanye’s plans to raise more than R10 billion by issuing shares for cash to fund the deal.

At Thursday’s close on the JSE, Sibanye was valued at nearly R26 billion, but after the news broke, the company saw its market value cut by 18% to R21 billion before climbing to R22 billion.

After Friday’s share moves, Sibanye’s market value was R8 billion below that of its offer from Stillwater.

Sibanye’s shares have been on a road to hell over the past four months as it reached a record high of more than R70 in August before declining by almost 70% since, partly due to the drop in the gold price.

“The consideration represents a premium of 23% to Stillwater’s prior-day closing share price and 20% to Stillwater’s 20-day volume weighted average closing share price,” Sibanye said.

In New York, Stillwater shares shot up 20% ahead of the US market opening on news of the Sibanye takeover.

A local gold analyst said that Sibanye’s plan to buy Stillwater was a “surprise move” and a “bold move”.

He suggested the company might be putting too much on its plate given Sibanye’s recent acquisitions.

Sibanye, which has gold and platinum mining interests, has been rapidly expanding into platinum mining by buying Anglo American Platinum’s Rustenburg mine as well as Aquarius Platinum.

The acquisition of Stillwater will be Sibanye’s biggest yet, and the company’s first foreign purchase.

An analyst said that the Rustenburg mine required a lot of work and Sibanye should have sorted that operation out before looking at further acquisitions.

The acquisition will make Sibanye the world’s third-largest palladium producer.

Neal Froneman, Sibanye’s CEO, said: “The transaction is consistent with Sibanye’s strategy of creating superior value.”

The purchase will be funded via a $2.7 billion (R37 billion) bridge loan from Citigroup and HSBC, and will pay back $500 million of Stillwater’s convertible debt.

Sibanye said the transaction was expected to close in the second quarter of next year.

After the deal is completed, Sibanye plans to raise new debt and at least $750 million by issuing shares for cash.

Stillwater is the only US miner of platinum group metals (PGMs) and the largest producer of PGMs outside South Africa and Russia.

The company has two mines – Stillwater and East Boulder – in Montana in the north west of the country.

The mine also owns the Blitz project and the Columbus metallurgical complex.

“In aggregate, the two mines are expected to produce between 535 000 and 545 000 ounces of PGMs in fiscal year 2016,” Sibanye said.

At the end of last year, Stillwater’s reserves totalled almost 20 million ounces of PGMs.

Sibanye was created in 2013 when Gold Fields spun off three of its local gold mines.

sibanye gold  |  platinum
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