Sibanye-Stillwater finally makes long-anticipated move on Lonmin
Lonmin shares leapt 28% on news of the R5bn deal, while Sibanye's dropped 4%
Sibanye-Stillwater has finally launched its long-anticipated takeover bid for platinum miner Lonmin, securing critical smelting and refining operations in a deal worth R5bn, and cementing its role as one of the world’s leading producers of platinum group metals.
With an appetite for transactions undimmed by the hefty debt incurred in the $2.2bn cash takeover of America-based Stillwater Mining, a palladium and platinum mining and recycling company, Sibanye has finally swooped on its embattled South African neighbour in an all-share transaction.
In a deal that offers Lonmin’s investors a chunky premium, the all-share deal will see the platinum miner’s shareholders owning 11.3% of the enlarged Sibanye-Stillwater and the gold and platinum group miner’s shareholders owning the balance.
Based on Wednesday’s closing share prices, the transaction represented a 35% premium, while on a 30-day volume weighted average price the transaction valued Lonmin at about £285m or R5bn, a 41% premium.
Lonmin’s share price jumped 28% to R16.05 on Thursday morning on news of the deal, while Sibanye-Stillwater’s fell 4.4% to R15.41.
“The flexibility inherent in the larger regional platinum group metals footprint, will create a more robust business, better able to withstand volatile platinum group metals prices and exchange rates,” said Sibanye CEO Neal Froneman.
“Furthermore, the sizeable combined resource base, with its pipeline of advanced and early stage projects, also offers significant growth and value upside potential under appropriate economic and market circumstances,” he said.
Lonmin’s board recommended shareholders vote in favour of the transaction, reckoning the offer to be “fair and reasonable”. Lonmin needs 75% of shareholders voting on the deal to approve it.
Sibanye’s market capitalisation of R35bn is ten times the size of London-and Johannesburg-listed Lonmin’s.
Lonmin has suffered a 53% decline in its capitalisation so far this year as it came dangerously close to breaching its debt covenants.
It delayed the release of its annual results in November, citing the need to find investment partners for two projects, the sale of two mines and to find parties wanting to rent space in its processing facilities, which are operating well below full capacity.
The jewel in the Lonmin crown for Sibanye are the smelters, and the base metals and precious metals refineries, which will allow the company to operate in the platinum group metals market as a fully fledged player, mining, concentrating and producing finished metal from the world’s largest source of platinum group metals.
Rocketing output, hefty costs and job cuts
Sibanye’s annual output of four platinum group metals, namely platinum, palladium, rhodium and gold, will shoot up to 2.8-million ounces from the 1.7-million ounces it generates from the Rustenburg and Zimbabwean platinum mines it bought in deals with Anglo American Platinum and the takeover of Aquarius Platinum and Stillwater.
Having its own smelter and refineries will untie the Rustenburg mines from a concentrate supply agreement and a later toll-treatment agreement with Anglo American Platinum, making Sibanye a truly independent platinum group metals producer.
Lonmin is just one of three companies in SA with a mine-to-market ability, the other two being Amplats and Impala Platinum.
Sibanye said there would be one-off costs of R80m arising from the deal and the loss of up to 700 jobs.
It also warned of another one-off cost of R1bn to build another furnace to boost the smelting capacity of the merged entities.
It would “continue to explore other ways to mitigate such one-off costs”.
Lonmin estimates about 12,000 jobs of the roughly 32,000 permanent and contract positions its operations have could be under threat during the next three years as it closes old mines.
It’s not entirely clear what the enlarged group would do about these positions if the highly conditional deal is finalised.
Sibanye reckons it can extract R1.5bn of cost synergies with Lonmin by 2021. Sibanye says it is on track to cut R1bn of costs in the merging of the Rustenburg mines and those of Aquarius.
“As part of a larger entity, Lonmin’s operations will be less constrained by significant fixed overhead costs which have in the past driven the need to fill processing capacity. This has resulted in the need to plan for suboptimal capital deployment and the potential for cross subsidisation of unprofitable mining areas,” Sibanye said.
“The acquisition will enhance Sibanye-Stillwater's flexibility to apply a more prudent approach to capital investment with respect to Lonmin's assets, more closely aligned to market demands and commodity prices, enhancing the longer term sustainability of the operations for the benefit of all stakeholders,” it said.