Sibanye’s “transformative” deal a vote of No Confidence in SA

By Alec Hogg.Mining veteran Neal Froneman is hard at work selling Sibanye's effective offer of $2.7bn to buy Stillwater Mining Company of Montana. It's the deal of his life, an acquisition worth virtually double Sibanye's own $1.4bn market valuation. But it is so high risk as to reek of desperation..Sibanye has agreed to borrow billions of US dollars and is so determined it signed a $33m break fee on top of what insiders describe as a "full" price. Sibanye tabled a cash offer of $18 for shares which traded at $5.35 in January..___STEADY_PAYWALL___.Stillwater is essentially a palladium miner which produces platinum as by product. Its ore carries PGMs in a 78:22 ratio with additional platinum delivered through the world's largest plant for recycling catalytic converters..The palladium price is up 54% from 2016 lows. Stillwater's share price trebled to $14.68 before Sibanye's offer which Stillwater directors recommend shareholders accept. This is no surprise. Although 23% is a low takeover premium, not so when viewed against the share price and palladium's bubble..For his part, Froneman is between a rock and a hard place. He knows Sibanye must diversify away from its exposure to the militant AMCU trade union and eccentric regulators. But saying so publicly would stir sting-ready political hornets. So he has been at pains to state the deal "is not the first step to exiting South Africa" where 100% of Sibanye's assets are based..His actions, though, speak louder than those words. Sibanye has secured a $2.7bn line of credit from Citi and HSBC, the first $500m to retire Stillwater debenture debt. The other $2.2bn will be paid to Stillwater shareholders..Sibanye plans to raise $750m by a rights issue to its shareholders, leaving a hefty $2bn in dollar denominated debt. At current record low US interest rates, servicing the debt won't be difficult. But the cycle is turning with every one percentage point increase translating into $20m a year – R300m – more interest..Deals like this have a way of taking on a life of their own. As a comprehensive Due Diligence has been concluded, the deal was probably conceived a year ago when Sibanye shares traded over double their current level. But while Froneman's currency has been on the slide, Stillwater's has appreciated..Why persevere? It says much about the desperate mood of SA business that despite their shocking record with US acquisitions, this deal comes hard on the heels of Steinhoff's equally surprising $2.4bn bid for US-based Mattress Firm..For Sibanye, this is a transformative transaction. But not in a good way. It removes the stock's appeal of being a high dividend payer leveraged to a rising Rand gold price. And brings aboard massive new debt. That says a great deal about the thought processes of those forced to operate in a country where long-term business confidence has all but evaporated.

Sibanye’s “transformative” deal a vote of No Confidence in SA

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