Sibanye moves to protect equity with super-sized $600m RCF

SIBANYE-Sibanye moved to quell fears it may eventually turn to equity finance again after its super-sized its dollar-denominated credit facility, nearly doubling it to $600m.

“We believe this is a step in the right direction and is in line with our thesis that the company has multiple options to relieve near-term pressure on the balance sheet and doesn’t have to raise equity,” said Goldman Sachs.

There was market talk Sibanye-Stillwater was operating under debt waivers from lenders given the size of debt compared to its pre-tax earnings – the measure applied by banks seeking assurance borrowers can continue to safely cover their debt obligations.

The new debt agreement, a revolving credit facility (RCF) that replaces a $350m RCF due to expire in August, is with a syndicate of international banks led by Bank of America Merrill Lynch International and HSBC Bank. It expires in three years with an option of extending the facility tenor through two further one-year extensions, if desired by the mining firm.

There is also an option for Sibanye-Stillwater to increase the facility size by a further $150m to $750m by introducing additional lenders to the syndicate. Interest is on a sliding scale of Libor plus 1.85% and 2% depending on the gearing ratios, said Sibanye-Stillwater.

“We are delighted with the continued support from our banking group with the improved terms, increased facility size and maturity extension of our USD RCF,” said Neal Froneman, CEO of Sibanye-Stillwater. “The facility size has been increased to accommodate the growth that has taken place in the group and whilst not materially utilised, it enhances the group’s liquidity,” he added.

Although the new RCF was due given the August deadline of the existing facility, there’s no doubting the pressure South Africa’s precious metals companies are under at present. Earlier today, Royal Bafokeng Platinum, decided to suspend a proposed R944m rights issue, preferring instead to utilise some R1.9bn in existing debt in order to conclude the acquisition of a concentrator and surface infrastructure.

The operating environment for platinum group metal companies in particular has been tough following a strengthening of the rand whilst the platinum price has fallen 5.4% in the last three months. The price of palladium, which had previously been on a bull run and had supported the rand basket of PGMs previously, had fallen nearly 17% over the same period.

Shares in Sibanye-Stillwater closed nearly 2.5% higher on the Johannesburg Stock Exchange at some R11.60/share. On a 12-month basis, however, the stock is down some 22%. Goldman Sachs has a 12-month target of R18/share on Sibanye-Stillwater, whilst the stock has attracted a number of other investors recently, including Van Eck and Exor Investments. The feeling is the firm offers a significant value opportunity.

4 COMMENTS

  1. So the company now has access to a substantially larger chunk of liquidity which is the life blood of any business. The immediate effect of this positive news is a slight rise in value on the day and a subsequent plunge the next, resulting in a nett drop in value. This, once again against the backdrop of a continuing clear rise in the Rand price of gold, which by the way is what Sibanye actually produces in South Africa – gold in Rand. Having watched the gold mines for many years it has become very clear that there is a deliberate “moderating” effect on any rise in the price of our gold mining shares, with a converse “hand of assistance” on the down side. This is no problem if one cares only for trading, which allows both long or short positions. However, the bigger picture is an unacceptable swindle for long term investors, who may not be able to perceive these multi year movements and are expecting a reasonable return on a sound investment.
    Is such a fraud acceptable when it is disguised to the point that it appears to be “normal”?

  2. Dear Fellow Readers,

    Concerned Citizen makes a compelling argument, but it’s only applicable to HMY!

    As is common course, yours truly is NOT a fan of SGL balance sheet at the moment. I abhor its debt position. The refi of the RCF is positive ONLY if the terms are improved , which they are in this instance. I wish to see repayments of the debt NOT its roll-over. If repayment are made , the easier it is to comply with profitability covenants ( i.e ND/EBITDA 25%).

    Its true that liquidity is better if in limitless abundance. But SGL must repay the debt, even if sacrificing SIB-CapEx at its PGM business is RSA given the poor pgm prices. They should however NOT sacrifice the same at its gold division or Stillwater given that these are key group profitability drivers at this moment. If anything, they should seek to lower unit costs further to support such debt repayments at this cash flow drivers.

    SGL debt covenants do require a step change in profitability which is unlikely to be achieved at this juncture given the pricing environment. So rather pay down the debt by cutting CapEx spend , which is forecasted at >R4,5Bn/yr. ND is at >R20Bn as of FY17! So an optimist in me seeks a R1,5Bn reduction in Capex.

    As for the “Clear rise in Rand price of gold” as seen by others, i beg to differ strongly and further posit that R500k/kg – R550k/kg is the range on which the RSA gold miners need to plan their LoM. So the likes of HMY must cut( do NOT hold your breath given the debt!) loss-making production accordingly and SGL must seek to ramp-up its operational rigour to sustainably deliver >1,6Moz/yr profitable gold production. AGA must right-size itself in RSA and grow its world-wide production profile to be a >4Moz/yr producer. GFI must resolve South Deep operational shortcomings and position itself as a >2,5Moz/yr producer. DRD will remain a penny stock and not worth my comment. Pan African Resources is in limbo and require new management to extract value from its Barberton mines.

    Kind regards
    GS

  3. Gold has risen, in Rand from around R2,500 per ounce in 2005 to just over R16,000 per ounce in April of 2018.
    https://goldprice.org/gold-price-south-africa.html
    The rise follows a tangent upward and provides a great than 15% increase per annum, using a compounded annual rate.
    https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php
    If the gold price is a barometer for inflation then what is it saying about South Africa?
    The official inflation rate as provided by Stats SA http://www.statssa.gov.za/?page_id=1854&PPN=P0142.1 (link only provides Feb2018), which records the inflation for mines under the Producer Price Index or PPI is far, far less and certainly nowhere near 15% p/a.
    Do these facts stack the odds in favour of the gold miners, or against them?
    Some of the miners may be doing a better job than others with regard to debt and liquidity and it may be reasonable to argue the merits of debt reduction, efficiencies and other operational details. However, the point about the industry is that, they are holding deposits of the metal in the ground at a discount. That is their value. The fact that the cost to mine has been tracking the price of Rand gold (R500,000 – R550,000 per Kg) regardless of what the PPI numbers suggest, together with the rollercoaster valuations over the last several years, should be questioned.

  4. Just for the record, SGL has now had a 10% drop in 3 days from R10.80 to R10.60 while the gold price has moved up, sharply, in Rand and Dollar terms.
    HAR and to a lesser extent GFI are showing similar downward trends in the same time frame.

    A clear continuation of what has already been pointed out before…

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