Paying top dollar for platinum; SA’s Sibanye Gold makes a bold move

A mine shaft is seen near Carletonville, west of Johannesburg, July 20, 2015. South Africa's Anglo American Platinum (Amplats) said on Monday it was still considering how to dispose of its labour-intensive Rustenburg and Union operations but a stock market floatation was a likely option. REUTERS/Siphiwe Sibeko

Short term stock value tumbles are not troubling Sibanye Gold Ltd, which last week agreed to pay 20% above market value for Montana’s Stillwater Mining Co which extracts the world’s highest grade platinum. You know a metal is ‘solid’ when a South African company does this in the midst of domestic political turmoil, over-regulation of its’ mines, labour strife and with SA’s credit rating hovering just above junk status. The Stillwater purchase price, at $2.2 billion is well above Sibanye’s market value of $1.9 billion, which has to set one thinking; either they are supremely confident in the future of one of the world’s most sought-after metals, or they are taking a major gamble. Market sentiment seems to be with the former, though a quick canvass of Sibanye’s shareholders will probably reveal slightly less enthusiasm for the deal than that of Stillwater’s good and great. – Chris Bateman

by Kevin Crowley

(Bloomberg) — Sibanye Gold Ltd. agreed to pay more than its market value for Stillwater Mining Co. in a $2.2 billion deal that would see the South African miner take charge of the world’s highest-grade deposit of platinum-group metals.

Sibanye will pay $18 a share in cash, a 20 percent premium to the Montana-based miner’s volume-weighted average closing share price over the past 20 days, the South Africa-based company said in a statement Friday. The acquisition exceeds Sibanye’s market value of $1.9 billion.

Sibanye CEO Neal Froneman
Sibanye CEO Neal Froneman

The producer will fund the purchase through $2.7 billion in loans from Citigroup Inc. and HSBC Holdings Plc and will pay back $500 million of Stillwater’s convertible debt. The company will also raise at least $750 million in a share sale.

Sibanye Chief Executive Officer Neal Froneman has sought to expand beyond the company’s base of aging South African gold mines and last year agreed to buy platinum assets from Anglo American Platinum Ltd. and Aquarius Platinum Ltd. The Stillwater purchase is his biggest yet and first outside of South Africa. The Stillwater board has accepted the offer and recommends it to shareholders.

Stillwater’s two mines in Montana are the only platinum-group metals operations in the U.S. and the biggest producer of these outside of South Africa and Russia. The mines will produce 535,000 to 545,000 ounces of platinum and palladium in 2016 at a cash cost of $430 to $455 an ounce. Platinum dropped 0.2 percent to $936.32 an ounce at 6:20 a.m. in London.

“The transaction represents a unique opportunity for Sibanye to acquire high-quality, low-cost PGM assets which offer near-term organic growth,” Froneman said in the statement. The purchase will underpin the “strategy of paying sustainable, industry-leading dividends.”

Sibanye shares more than tripled in 2016 to a record-high 72.48 rand on Aug. 5, with Froneman saying earlier this year he would consider using the high stock price to make acquisitions. Since then, the stock has tumbled 61 percent to 28.35 rand.