Sibanye-Stillwater’s move to chip away at its debt mountain found favour with the market on Tuesday, with analysts saying the company was now better positioned to weather difficult trading conditions.
Sibanye now intends to clear 31% of its long-term debt through existing cash resources, something the company expects will reduce annual interest costs by about R378m a year. In the six months to June, Sibanye’s net debt grew to R25bn from R22bn a year earlier.
The gold producer’s recent string of aggressive acquisitions has left it highly geared, with the company grappling with falling gold prices even as it continues to eye Lonmin, the world’s third-largest platinum producer.
The debt repurchase would be funded through the proceeds of a financing recently concluded with Wheaton Precious metals, Sibanye CEO Neal Froneman said.
Sibanye had announced a streaming deal with Wheaton in July, which saw the latter advance $500m upfront for Sibanye’s gold and palladium production in the US.
Companies generally enter into a streaming agreement when they need to secure funds but want to avoid the high cost of short-term debt or dilute their shareholders.
This had pleased all sides, including Sibanye shareholders, with the rationale to target expensive debt given the outlook for the sector, said head of mining at Cadiz Corporate Solutions Peter Major.
The proceeds of the streaming deal were always going to be targeted at Sibanye’s most expensive debt, with the gold miner also somewhat boosted recently by improved revenue and the weaker rand, said Nedbank mining analyst Leon Esterhuizen. “The only immediate threat not yet resolved is the potential for a strike in the gold business if wage negotiations break down,” he said.
Sibanye-Stillwater’s aggressive growth strategy, notably its foray into platinum group metals, has raised the firm’s gearing and prompted some resistance to further expansion, including the acquisition of Lonmin.
There were few signs that a new commodity bull run was likely in coming years, but Lonmin still looked like an attractive prospect at current valuations, said Major.
The platinum price was still well below its historical long-term average and Sibanye management was likely to continue to push its case.
“Lonmin employed 31,000 people and Sibanye was likely to find significant support from the government, unions and the community,” said Major.
Those results saw a finance expense of R1.4bn, which was flat from the matching period a year earlier.
Cash on the balance sheet fell to R2.1bn from R6.5bn.
Sibanye closed 2.36% higher on Monday at R9.09.