Sibanye-Stillwater is digging deeper into the circular economy. One of the world’s largest mining companies has agreed to buy Reldan, a US-based metals recycler, for $211m (almost R4bn).
The deal will boost its exposure to green precious metals and enhance its cash flow and earnings. That is one reason it pitched the deal to shareholders in a regulatory filing, or Sens, last week, and there is no obvious reason to doubt that commercial logic.
It also shows how mining companies can diversify away from traditional extraction and benefit from the growing demand for sustainable materials, boosting their appeal to a rapidly expanding universe of environmentally conscious investors.
Reldan is a recycling group that reprocesses various waste streams, including industrial and electronic waste, to recover gold, silver, platinum, palladium and copper. These metals are used in various applications, from jewellery and electronics to catalytic converters and fuel cells. Recycling them reduces the need for mining new ore, which is more energy-intensive and environmentally damaging.
Sibanye, which is already one of the world’s largest platinum group metals (PGM) producers, will add Reldan to its existing US PGM recycling business. The combined operation will have the capacity to process more than 70-million pounds of waste and produce more than 1-million ounces of PGMs annually. The deal will also diversify Sibanye’s revenue mix, as Reldan derives about half of its income from gold and silver.
The transaction is financially attractive to Sibanye too. Reldan generated just more than $42m in core profit, or earnings before interest, tax, depreciation and amortisation (ebitda), implying a multiple of just more than five times. Assuming that Reldan’s free cash flow is equal to ebitda minus 20% capital expenditure — a common benchmark for this industry — and taxes, the deal puts money in the bank straight away and will have a payback period of just longer than five years.
The deal is not without risks. Reldan operates in a competitive and fragmented market, where margins depend on the availability and price of waste feedstock and the volatility of metal prices. Regulatory changes and technological disruptions could also affect the demand and supply of recycled metals. And Sibanye will have to integrate Reldan with its existing operations and manage potential cultural and operational differences.
Sibanye is not alone. The deal comes as global mining companies are looking for materials that can be used for electric vehicle batteries, wind turbines and solar panels, such as nickel, copper and cobalt. Some miners, such as Rio Tinto and Glencore, are also expanding their critical metals recycling to power the energy transition and improve their environmental credentials.
Still, these challenges are outweighed by the strategic and financial benefits of the deal. Sibanye is not only expanding its footprint in the US, the world’s largest PGM recycling market, but is also positioning itself as a leader in the circular economy. The deal aligns with its commitment to sustainability and net zero emissions and enhances its appeal to environmentally conscious investors.
Sibanye wants to turn trash into treasure and make a green goldmine. Given his track record, CEO Neal Froneman does not have the luxury of low expectations.
• Motsoeneng is Business Day deputy editor.
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