Sibanye-Stillwater has become one of the world’s leading sources of platinum group metals (PGM) by successfully taking over number three producer Lonmin, sending both their share prices soaring.
On Tuesday, Sibanye’s share price shot up more than 10% to R12.43, its biggest one-day gain in more than seven months, while Lonmin rocketed nearly 12% to close at R12.07, its largest rise since February 13 2018.
Shareholders of both companies overwhelmingly supported the R4.2bn all-share transaction that will create a powerful player in the global PGM market, leaving it competing with Anglo American Platinum and Russia’s Norilsk Nickel as the largest producers of platinum and palladium, respectively.
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The transaction, which was unveiled in December 2017, will make Sibanye one of the world’s largest producers of PGMs, with a rare mine-to-market set of assets, including the critically important base and precious metals refineries that will come with the Lonmin transaction.
The price of the four PGMs, when the deal was announced, was about R13,000/oz. At the time, Lonmin said that it would have to cut 12,600 jobs over three years as it shut old mines and unprofitable shafts. Sibanye said that its plans showed the need to cut a further 890 jobs on top of that.
With the price for the four metals, platinum, palladium, rhodium and gold, now averaging R17,000/oz, Sibanye would revisit those job cut numbers and the base plan that Lonmin was working towards, Sibanye CEO Neal Froneman said.
The Competition Commission put a six-month moratorium on job cuts at the new entity.
Sibanye had yet to become involved in the management of Lonmin’s mines as would normally have been the case once the Competition Tribunal gave its approval for the deal in November 2018, because of an appeal against the decision by the Association of Mineworkers and Construction Union (Amcu).
Amcu lost that appeal two weeks ago, clearing the way for the shareholder votes. The delay, however, meant Sibanye had not had time to formulate a plan on how best to retain as many jobs as possible, Froneman told Business Day. He declined to put any numbers to the exercise. "If we can save jobs or take longer to close shafts, of course we’ll do that."
Nedbank analyst Leon Esterhuizen said Lonmin, with 30,000 employees, was overstaffed relative to other platinum mining companies, and the first job for Sibanye’s team was to immediately improve productivity per person employed; cut marginal or unprofitable production; and start thinking about growth in the remaining assets.
In December 2017, Froneman spoke of the need for a new $100m furnace in the smelting complex, while the market has been waiting for cash-starved Lonmin to complete the jewel in its crown, the partially built K4 mine. Esterhuizen said the K4 project would have to be funded from Lonmin’s operations as Sibanye’s shareholders were unlikely to want to add more debt to the balance sheet after it bought Stillwater Mining, a palladium and platinum miner in the US, for $2.2bn cash.
Estimates on completing K4 run between $300m and $500m, money Lonmin does not have. Net cash in Lonmin at the end of March was $71m. Froneman said that there were up to five projects within Lonmin that Sibanye had committed to SA’s competition authorities to develop when market conditions and prices were favourable.
The proximity of Sibanye’s Rustenburg mines and the unlocking of synergies between the two sets of assets would deliver R2bn in savings. "This will offset the risk of the downside to metal prices and offsets the risks in dealing with Lonmin’s well known social issues."
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