Neal Froneman: International options
Neal Froneman: International options

Sibanye-Stillwater CEO Neal Froneman warned the Department of Mineral Resources to refrain from derailing a R5bn transaction to take over Lonmin in a deal that would save 20,000 jobs and give beleaguered Lonmin shareholders welcome relief.

The immediately positive reaction of the Lonmin share price to the all-paper takeover bid by Sibanye that would give the platinum miner’s investors an 11.3% stake in Sibanye that would leapfrog Impala Platinum to become the world’s second-largest platinum miner spoke volumes about how the offer was received by investors in the struggling company.

Lonmin, the world’s third-largest producer of platinum, has in recent years struggled in the low metal price environment, forcing it into a highly dilutive rights issue in 2015 and bringing it dangerously close to breaching debt covenants this year.

Lonmin reached the point where it was preparing to sell assets, bring in partners on projects and rent or sell excess processing capacity, particularly at its smelting and base metals and precious metals refineries, a break up of the company and longer-term destruction of the underlying value in Lonmin Sibanye wanted to avoid at all costs.

For shareholders the awareness that they could agree to the takeover offer at a premium of some 40% to the 30-day volume weighted average price and secure an 11% stake in Sibanye, a gold and PGM mining company with assets in three countries appeared to be the tonic the share price which up to this week had given up more than 50% of its value so far this year.

Froneman and Lonmin CEO Ben Magara both expressed full confidence the deal would be concluded in the second half of 2018, with Mineral Resources Minister Mosebenzi Zwane and his top officials consulted on Thursday morning.

The transaction does not need ministerial approval because it would be the takeover of the full company. Magara and Froneman said they’d received positive feedback from Zwane and the department for a deal which would save 20,000 jobs out of nearly 33,000.

Some 12,600 jobs will be cut over the next three years whether the deal went ahead or not because Lonmin was closing a number of old, depleted mines, said Magara, who pointed out Sibanye agreed to buy $200m worth of assets from Lonmin if the deal did not proceed.

But that didn’t stop Froneman from issuing a stern warning to the department and elements within communities around Lonmin from trying to derail or delay the transaction.

“What is critical, and this will be an appeal to stakeholders, we from the outside have seen, in my view, how a company going through tough times has been abused. That’s got to stop,” Froneman said. “It was like a sick dog being beaten. Carry on beating and it will die. They’ve actually done a lot of good on their social and labour plans.”

“Anything that happens such as the cancellation of a mineral right or some obscure DMR letter and we will push back hard. It’s written in as a condition precedent. We don’t need any of that so hopefully they’re listening.”

“The offer values the Lonmin assets significantly higher than our valuation – below R10/share – and Sibanye would require significant synergies from the transaction in order for it to be value-accretive,” said Macquarie analyst Gerhard Engelbrecht in a note.

For Sibanye it was a deal a long time in the making, said Froneman who heads up the most dynamic mining company in the country, completing at least eight transactions since it listed in 2013, swooping on gold and PGM mines and companies with singular focus and at a cost of about R45bn.

Magara said Lonmin’s board fully supported the bid and recommended shareholders vote in favour of the deal. At least 75% of Lonmin’s voting shareholders need to approve the offer.

“We think that shareholders will welcome the chance to become part of a larger organisation that provides greater balance sheet and operational flexibility and expect Lonmin to re-rate towards the offer price,” said BMO analyst Edward Sterck.

Lonmin shares closed up 7% at R13.40, off a session peak of R16.05 shortly after the deal was announced on Thursday morning.

seccombea@bdfm.co.za

 

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