Sibanye May Almost Double Mining Deal Share Sale to $1.3 Billion

  • Miner wants more equity, less debt to fund Stillwater deal
  • Rustenburg UG2, West Rand, Burnstone projects to be reviewed

Sibanye Gold Ltd. said it may seek to almost double the size of a planned share sale to $1.3 billion, or 60 percent of its market value, to reduce the amount it has to borrow in its takeover of Montana-based platinum and palladium miner Stillwater Mining Co.

South Africa’s biggest gold producer said in December in announcing the surprise $2.2 billion deal for Stillwater that it planned to raise at least $750 million for the purchase, which will transform Sibanye into the world’s third-largest palladium producer.

After meeting investors to discuss the deal, Sibanye received “feedback that shareholders prefer to minimize the financial leverage associated with the transaction, with certain shareholders expressing support for an increased equity issue,” the company said in a statement Friday.

Chief Executive Officer Neal Froneman has been on the hunt for acquisitions the last three years as its resources at aging gold mines in South Africa become depleted and are unable to sustain the company’s dividend over the longer term. Sibanye has expanded into platinum-group metals by purchasing four mines in Rustenburg, South Africa last year.

The Stillwater deal will be its first purchase outside of its home country and the biggest international takeover by a South African mining company since 2001. Sibanye has said it hopes to complete the takeover by the second quarter of this year.

‘Strong Rand’

The desire to reduce debt incurred by the transaction stems from “the current strong rand environment,” and “spot precious metals prices,” Sibanye said. The company is typically hurt by a strong South African rand in which it pays costs and a weak U.S. dollar in which its receives revenue.

While the rand has gained 19 percent against the dollar in the past year to 13.4211 at 10:19 a.m. in Johannesburg, it’s still 16 percent weaker than three years ago.

The stronger rand also means Sibanye may defer or idle some development projects in South Africa as a margin squeeze hurts cash flow.

The company is reviewing its planned 2017 spending on the Burnstone gold operation, the UG2 project at its Rustenburg platinum operation, and the tailings-retreatment project in the Gauteng province’s West Rand area, which involves going through mine-waste dumps for overlooked metals.

Project Review

“Management is re-evaluating its current growth capital-expenditure plans,” Westonaria, South Africa-based Sibanye said in the statement. “Certain projects may be deferred or placed on care and maintenance until commodity prices sustainably improve,” and exchange-rate volatility has subsided, it said.

Sibanye’s gold production was 1.5 million ounces in 2016, about 2 percent lower than its target due to the planned closure of Cooke 4 shaft and power outages resulting from storms. All-in sustaining costs at 452,000 rand a kilogram ($1,007 an ounce) were lower than expected.

Restructuring its platinum operations in South Africa by reducing costs and merging shared services is progressing according to plan, the company said.

Sibanye fell 3.2 percent, the most since Jan. 25, to 30.17 rand at 10:45 a.m. in Johannesburg. Gold declined 0.2 percent to $1,213.19 an ounce.

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