SIBANYE-Stillwater has excluded platinum from its streaming deal with Wheaton International because it believes there is more upside in the metal’s price over the next two years than there is in gold or palladium, CEO Neal Froneman said on Monday.
Normally streaming deals are over minor production. About 78% of US platinum group metal (PGM) miner Stillwater’s production is palladium and 22% is platinum. Gold is a by-product.
This deal, under which Sibanye is selling a portion of future gold and palladium production from Stillwater in return for an upfront payment, will raise $500m immediately. This will enable Sibanye to cut its current net debt, in rand terms, from about R23bn to R16.5bn.
With this funding, Sibanye’s ratio of net debt to adjusted ebitda will drop well below the current covenant with its lenders of 3.5 times and the future covenant of 2.5 times. Froneman said the cost of this arrangement was significantly less than alternative options in international capital markets. The cost depended on prices but gold and palladium prices would have to rise by 25% to equal current debt costs.
The debt was largely incurred to buy Stillwater last year for $2.2bn.
Froneman said this was a “commercially smart” deal because the average amount of palladium that would be delivered was 3.8% of Stillwater’s production while the $500m raised was 23% of the original purchase price.
Sibanye-Stillwater will announce its first-half results on 23 August, when it will give more details on how it will apply the $500m to reduce debt.
Sibanye shares were among the biggest gainers on the JSE on Monday, with a 2.2% rise to 753c. The price is half what it was a year ago.
Apart from the upfront amount, Wheaton International, the streaming partner, will pay Sibanye 18% of the spot price of gold and palladium for every ounce delivered until the $500m is fully offset. Then Sibanye will receive 22% of spot gold and palladium prices.
The transaction is for all the gold from the US PGM operations, which is mined as a byproduct, and an initial 4.5% of palladium, dropping to 2.2% and then 1%, as various milestones are reached.
The agreement has a completion test, requiring Sibanye-Stillwater to complete the Blitz expansion project at Stillwater in line with its current plans.
Richard Stewart, Sibanye’s head of business development, said Sibanye has already invested two-thirds of the capital needed for Blitz so there was very little execution risk. There was a maximum penalty payable of $147m if Blitz was not at its production target of 300,000 ounces annualised by 2024. But the maximum would only be payable if Blitz was producing nothing. It was already producing 40,000-50,000 oz/year and ramping up.
