South Africa's Sibanye pays $2.2 billion for Stillwater in platinum push

South Africa's Sibanye Gold will buy Stillwater Mining, the only US miner of platinum, for $2.2 billion in cash, taking a major step outside its home market. As the world's top producer, Friday's deal cements South Africa's grip over global platinum supply. But the price Sibanye is paying to increase its own share is larger than its market value and the move triggered a sharp fall in its shares.
Sibanye said it was buying Stillwater, which operates in Montana and is the largest primary producer of platinum group metals (PMGs) outside South Africa and Russia, using a loan that it will re-finance with new debt and a rights issue of at least $750 million. Chief Executive 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 lift Sibanye to the world's third largest palladium producer and fourth largest platinum group metals miner, Froneman said. But its stock fell following the announcement of the deal, with some analysts highlighting the risks amid warnings that platinum could be in oversupply next year. Sibanye said it will pay $18.00 per share in cash for Stillwater, a 23 percent premium over Thursday's closing price, which it was initially financing through a $2.675 billion 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 percent to an 11-month low, but recovered to trade 13.9 percent weaker at 24.40 rand by 1125 GMT, compared with a 0.2 gain in the JSE's All-share index. "People are just concerned about the size of the acquisition," said Gryphon Asset Management analyst Reuben Beelders in reference to the share price drop.
Froneman said Sibanye's share price was too low, even though it paid "industry-leading dividends". "Part of that is the fact that we are not as geographically diverse as some of our competitors," he said. Sibanye did not detail any potential regulatory hurdles, saying only that the deal was conditional on the required regulatory authorisations being obtained.
It said it still needed deal approval from both its own and Stillwater's shareholders, although it already has the support of 29 percent 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.