South Africa’s Sibanye Gold took a major step outside its home market on Friday with a $2.2bn cash bid for Stillwater Mining, the only US miner of platinum and palladium.
If it goes through, the deal will cement South Africa’s grip over global platinum and palladium supply and diversifies Sibanye’s portfolio with US exposure.
However, the price Sibanye is offering to increase its own share of supplies of the precious metals is larger than its market value and the move triggered a sharp fall in its stock.
Sibanye is buying Stillwater, which operates in Montana and is the largest primary producer of platinum group metals (PMGs) outside South Africa and Russia, with a loan that it will re-finance with debt plus a rights issue of at least $750m.
Chief executive officer Neal Froneman wants to cut the bullion miner’s dependence on gold and platinum in South Africa, where a volatile currency, disruptive labour strikes and strict government rules have weighed on Sibanye’s share price.
The deal will make Sibanye the world’s third largest palladium producer and fourth largest platinum group metals miner, Froneman said.
Some analysts highlighted the risks as the platinum market sinks into oversupply.
But while demand from the diesel car sector for platinum, which is used in catalytic converters, is under pressure because of air pollution concerns, palladium used in hybrid petrol cars could see higher consumption and the market is in deficit.
Palladium reached its most expensive versus platinum since early 2002 last month as the US election result sparked a surge in cyclical assets.
“It’s a tier one asset in palladium in the United States,” a source close to the deal said. “Normally in the US, there would be a 30-40% premium. This is around 20 percent.”
Sibanye said it will pay $18.00 per share in cash for Stillwater, a 23% premium over Thursday’s closing price, which it was initially financing through a $2.675bn loan arranged by HSBC and Citigroup.
“These are some of the lowest cost ounces in the world,” said Froneman, referring to Stillwater’s operations.
Sibanye’s shares dropped 18% to an 11-month low, but recovered slightly to trade 14% weaker at 24.33 rand by 1300 GMT.
Froneman said Sibanye’s share price was too low, even though it paid “industry-leading dividends” and this was partly because it was “not as geographically diverse” as some competitors.
Sibanye did not detail any regulatory hurdles, saying only that the deal was conditional on the required authorisations.
It said it needed deal approval from its own and Stillwater’s shareholders, although it already has the support of 29% of its own investors.
Sibanye was spun off from Gold Fields in 2013. It bought Aquarius Platinum and Anglo American Platinum’s Rustenburg mines last year.
Source: The Africa Report