Sibanye-Stillwater heading for legal bust-up as Appian says $1bn sale reverse “surprising”

SIBANYE-Stillwater is heading for a legal dispute with private equity firm Appian Capital, the company that agreed to sell for $1bn two assets in Brazil that Sibanye-Stillwater said it no longer wants to buy.

Sibanye-Stillwater announced earlier today that a “geotechnical event” had given it cause to rethink its proposed purchase of the Santa Rita nickel mine and the Serrote copper project, currently ramping up. It did not specify the nature of the event, but Appian said today it was “a localised fracture that occurs in normal course open pit operations”.

“Appian notes Sibanye-Stillwater’s surprising announcement today and believes there to be no basis for Sibanye-Stillwater to lawfully terminate the Atlantic Nickel SPA and the MVV SPA,” said Appian Capital. Atlantic Nickel and MVV are the companies in which the nickel and copper assets are housed.

Said Appian: “To remedy the condition of the area in question, some amount of additional waste will need to be mined earlier in the mine plan which equates to less than 1% of the mine’s volume over a 34 year mine life.

“Appian does not agree that this constitutes a material adverse event.”

It indicated that a legal spat was brewing. “Appian is currently assessing all of its legal options and will take all necessary action to enforce its legal rights,” it said.

“Santa Rita is expected to have strong operational and financial performance in 2022 and generate significant free cash flow.

“Santa Rita is a high-quality asset that Appian successfully restarted with a first quartile cost position and an extended life of mine,” it said.

Shares in Sibanye-Stillwater fell 7% in late Johannesburg trade.

While Serrote is in ramp up mode Santa Rita – described last year by Sibanye-Stillwater as “the largest nickel-cobalt sulphide open pit mines in the world” – is generating cash. Santa Rita is developed to produce 16,000 tons a year of nickel equivalent and has been scoped for a seven year life.

When the transaction was announced, in October it comprised the second leg of some $2bn in acquisitions that year alone intended to diversify Sibanye-Stillwater from its platinum group metals and gold production, which is mostly in South Africa.

What now for Sibanye-Stillwater?

Prior to Appian Capital’s announcement, analysts were mixed on what Sibanye-Stillwater’s decision to withdraw from the transaction meant for the company.

“This should be a short-term positive for the stock, as many investors are not that comfortable with the company’s battery material strategy, in our view,” said Arnold van Graan, an analyst for Nedbank Securities.

Pulling a $1bn deal would also boost the prospects of an improved dividend for shareholders, said Van Graan although he added that shareholders might do a double-take when it came to trusting the quality of other assets the company has bought, or is intending to buy.

Dominic O’Kane, an analyst for JP Morgan took a different view arguing that whilst there might be a short term benefit to shareholders, the opportunity to buy these assets might not be repeated.

“While in the short-term we see upside to free cash flow yields and capital returns with the elimination of a $1bn outflow … there is potential downside should Sibanye-Stillwater choose to undertake a similar sized deal at a less favourable multiple,” he said in a note to clients today.

Intriguingly, Van Graan raised the prospect that Sibanye-Stillwater might not only still aim to spend another $1bn on an acquisition, but that it also might direct these funds towards revisiting its gold growth plans.

“We believe Sibanye would look for other assets or deals to fill the gap left by the deal and, therefore, use this cash towards further merger and acquisition,” he said. “We would not be surprised if the company takes another look at some of the international gold assets it considered previously,” he said.

About 10 months ago, Neal Froneman, CEO of Sibanye-Stillwater, acknowledged that he was interested in building an African mining champion by merger his company with AngloGold Ashanti and Gold Fields. Approaches to both companies on these terms were rejected, according to sources.