Neal Froneman: If the deal fails to close Sibanye-Stillwater Sibanye-Stillwater will move on Freddy Mavunda
Neal Froneman: If the deal fails to close Sibanye-Stillwater Sibanye-Stillwater will move on Freddy Mavunda

Little time was spent on competition issues during the three days of the Competition Tribunal’s hearing about the proposed merger of Sibanye-Stillwater and platinum producer Lonmin. This was entirely because there weren’t any such issues.

Instead, the tribunal sought to square the matter of the sustainability of the embattled platinum producer with concerns about job losses of more than 13,000 staff.

The proposed acquisition of Lonmin by Sibanye-Stillwater has put pressure on the shares of the companies — they have both lost 43% in market value so far this year.

Over this time the platinum price has also deteriorated; in August it dipped below a decade low of $800 an ounce.

Most platinum producers are feeling the pinch, but Lonmin appears on its last legs and told the tribunal it will run out of cash in 18 months.

The company has raised $1.6bn from its shareholders through three rights issues over the past eight years, but has little to show for it. Now CFO Barrie van der Merwe says Lonmin will have a hard time trying to raise further capital from shareholders — or anyone else, for that matter.

In September the Competition Commission recommended that the merger be approved with conditions, such as short-term projects aimed at retaining employees for a time in the hope that the projects might become economically viable, should the platinum price rise.

But the Association of Mineworkers & Construction Union (Amcu), the largest union at Lonmin, says the proposed conditions are inadequate and that the company has been in much better health since the merger application was lodged.

Amcu bases this opinion on a new metals purchase agreement that has provided Lonmin with $200m, though the company says $150m of it was used to repay debt.

Lonmin has also reported improved production performance in the most recent quarter and, Amcu notes, even the Hossy shaft, which was said to be depleted, has been mined profitably this year. An improved platinum group metals price also bodes well for it.

Liberum analyst Ben Davis says that though things have improved for Lonmin, it won’t change much for the company, which must refinance its debt in February. He says investor attitudes towards it remain negative.

Nedbank CIB analyst Arnold van Graan says the matter is simple: "Lonmin needs to be recapitalised, something the company could find very hard to do in its current form."

But Amcu says Lonmin employees may in fact be worse off after the merger. It says the job losses at Lonmin would have been significantly fewer were it not for Sibanye-Stillwater’s involvement.

Lonmin had estimated that there would be 10,146 job cuts, but upped the number to 12,459 after a letter from Sibanye-Stillwater CEO Neal Froneman to Lonmin CEO Ben Magara suggested that more employee reductions were needed.

Additionally, Lonmin could never have afforded about R27.4bn in retrenchment packages at R220,000 each, the union argues.

The merging parties deny this, and warn that the outcomes would be considerably worse if the merger didn’t take place and Lonmin were forced into business rescue.

Lonmin says 12,459 jobs were to be cut as part of a standalone plan, one of several it was mulling free of Sibanye-Stillwater’s influence. Sibanye-Stillwater concurred, saying the merger-specific job cuts numbered just 885. When added to Lonmin’s plan, it would bring the total number of job cuts to 13,344.

Regardless of which portion of the cuts is merger specific, such a significant number of job losses will have an impact on the areas surrounding the mines.

Lonmin’s existing debt to the community came into sharp focus at the tribunal hearings.

To counter the negative effect of operations, and to redress historic injustices, mining companies are required to bolster community development through social and labour plans. This is a basic condition for being awarded a mining right by the state.

But, as one of the intervening parties points out, only 30% of mining companies in SA fully comply with their social and labour plans.

In Lonmin’s case the company notably failed to comply with a commitment it made a decade ago to build 5,500 houses.

Froneman told the tribunal that his company would fulfil Lonmin’s outstanding obligations and any others that may arise in future.

This was a condition the Competition Commission included in its recommendation.

But representatives for affected communities raised concerns that such commitments were mere lip service when the department of mineral resources itself has proved unable to enforce compliance. Instead, the representatives have implored the competition authorities to impose more specific conditions so that there could be more transparency and accountability this time around.

Froneman warns that though Sibanye-Stillwater is not inflexible, its shareholders still have to vote on the proposed merger, and it would be unlikely for them to have an appetite for adding more risk to an already high-risk company it would be acquiring. Ultimately, if the deal fails to close Sibanye-Stillwater would move on.

"This merger has put a huge amount of pressure on our share price," Froneman says.

"We can’t spin our wheels forever and a day trying to achieve something that will be in the national interest."