Sibanye-Stillwater lost a fifth of its value on Tuesday after unveiling a plan to build a sizeable war chest to smooth out its journey towards green metals.
The precious metals producer plans to raise $500m (R9bn) through the issue of convertible bonds that enable the participants to earn an annual interest of 4%-4.5% until November 2028 when the principal amount will be settled.
Participants will also be allowed to convert their bonds into new Sibanye shares in the future, an outcome that potentially erodes value from existing shareholders.
The initial conversion price will be set within a premium range of 30%-35% above the volume-weighted average share price of Sibanye, based on Tuesday’s closing price.
The share price ended 20.4% weaker to R18.70, wiping out R13.5bn in market capitalisation. The drop marked the biggest fall for the share price since March 2020, and the third largest since Sibanye listed on the JSE about 10 years ago after it was unbundled from Gold Fields.
“It looks like a proactive move by Sibanye to protect the balance sheet given the downturn in PGM [platinum group metals] prices. This raise will give the company some room from a balance sheet standpoint but will not be the last should the lower PGM prices prevail,” said Imtiaz Suliman, portfolio manager and executive director at Sentio Capital.
“It also could be used for further M&A [merger & acquisition] deals in the area such as battery metals that the company wants to grow in. We are seeing the first signs of stress given the fall in PGM prices so far.”
The capital raise exercise comes against the backdrop of the downturn in the commodity markets, which has forced Sibanye to shut marginal mines in the Rustenburg area, putting about 4,000 jobs at risk.
CEO Neal Froneman is pivoting the company’s strategy towards environmentally sustainable green metals. It has accumulated lithium assets in Finland and Nevada, the US. More recently, Sibanye announced the acquisition of US-based recycler of green precious metals Reldan Metals.
Besides paying for Reldan, the proceeds of the convertible bonds will preserve the current balance sheet to fund existing operations and projects in a lower commodity price environment, Froneman said in a statement.
The squeeze in PGM prices has also caused peer group Impala Platinum (Implats) to review its cost base, leading to what Implats said earlier in November was a targeted voluntary separating agreement with some of its employees.
Implats accounts for about 20% of global primary PGM output annually and oversees about 70,000 employees in SA, Zimbabwe and Canada.
Froneman has earned a reputation for turning around underperforming mines, having bought them at the bottom of the cycle.
“It seems people are selling shares today to buy the bonds, which will pay interest and … the conversion price is 30%-35% above [Monday’s] closing price,” said Greg Katzenellenbogen, senior portfolio manager at Sanlam Private Wealth
The notes will be issued on November 28.
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