Sibanye cuts Stillwater rights issue to $1bn as conditions improve

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Sibanye CEO, Neal Froneman Pic: Martin Rhodes

SIBANYE Gold confirmed today it had received US regulatory approval for its $2.2bn bid for Stillwater Mining and said it would restrict the rights issue portion of its funding plan to $1bn (R13.4bn) “given current market conditions”.

In February, Sibanye suggested it could issue shares totalling $1.3bn (R17.3bn) with the balance sourced from debt which would be combined to replace a $2.65bn bridging finance package which is currently in place.

“The rand weakening against the dollar has vastly improved our gold margins while the dollar basket of platinum group metals (PGMs) means Stillwater is generating a $200 per ounce margin which is enough to cover its own financing,” said James Wellsted, head of corporate affairs for Sibanye.

“So we obviously want to minimise dilution of earnings in the short-term which is why we have reduced the size of the rights issue,” he added. The rand gold price is currently at R550,947/kg compared to R498,883/kg on March 24.

Sibanye aimed to launch the rights issue shortly after the shareholder vote, which requires the support of 75% of shareholders, which has been scheduled for April 25. The intention is to complete the financing package for takeover of Stillwater by end-June. Stillwater is also holding its respective shareholder meeting on April 25.

The balance of the funding would be arranged through $1bn in debt which Sibanye said would be “most likely through the bond market” while it would also “explore other sources of long-term capital”.

“Additional funding is likely to be comprised of combination of capital sources, including equity like products such as commodity streaming transactions, convertible bonds or new equity issued under the group’s general authority, as well as debt instruments such as bank debt and bonds,” Sibanye said.

Goldman Sachs said this final tranche of funding via convertible bonds or equity could mean “… a persistent overhang on the equity”. It also said the $1bn debt package was likely to be floated in US dollars which would be sub-investment grade and therefore place “incremental pressure on the cash generation capacity of the company”.

It was, however, positive on the reduction in the rights issue.

Sibanye aimed to complete this final piece in the funding puzzle by the end of the year.

Last night, Stillwater announced that it had received notice from the Committee on Foreign Investment in the US, or CFIUS, that the Sibanye’s proposal posed no unresolved national security issues.

The approval was an indication that the administration of President Donald Trump would not necessarily stand in the way of conducting deals associated with Chinese investments, said Bloomberg News. Sibanye is 20% owned by Chinese consortium Gold One Group.

In addition to its Chinese ownership, Stillwater is the sole US source of platinum and palladium, materials that the Defense Department regards as strategic, said the newswire.

The purchase of Stillwater will enable Sibanye to increase PGM production 50% to 1.5 million ounces a year, making it the world’s third largest palladium/platinum producer and the fourth largest 4E PGM producer.

“The transaction is consistent with Sibanye’s strategy of creating superior value for all of our stakeholders by enhancing the cash flow generation through value accretive growth,” said Neal Froneman, CEO of Sibanye at the time of the transaction’s first announcement on December 9 last year.

It would not threaten the group’s strategy to pay dividends and dividends would “absolutely not be stopped” in the immediate aftermath of the transaction, Froneman said.

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