THE BOTTOM LINE
Sibanye takes the pain now, but at last it has room to move
Streaming deal removes debt from the balance sheet and reduces interest repayments
Sibanye-Stillwater has joined a growing list of mining companies which sell forward a portion of their future production to secure funding to address debt or to complete projects.
Sibanye was labouring under a heavy debt burden, with net debt of R23-billion, some R6-billion more than its market capitalisation.
It was a factor behind the halving of its share price so far this year as investors and analysts fretted the company would have to issue shares to raise capital in a heavily discounted and dilutive rights issue.Sibanye CEO Neal Froneman has repeatedly told the market that a rights issue was not on the cards, particularly after the poor performance in the company’s stock. He has also said raising money through bonds or other debt instruments was simply too expensive. He said an objective of the capital raising was to remove debt from Sibanye’s balance sheet and reduce interest repayments.
The streaming deal with American’s Wheaton Precious Metals, which provides $500-million cash upfront, means Sibanye will hand over all its gold production now and into the future to Wheaton, as well as a tiny percentage of palladium from the Sibanye platinum group metals mines in the US.
It doesn’t have to pay cash to Wheaton. All it has to do is mine metal and deliver it to Wheaton for the rest of the lives of its mines that it has in operation now, and those it will build in the future.
Sibanye will give up nearly $40-million of value annually from its US mines in the next decade and into the future. But as Wheaton CEO Randy Smallwood says, the mines will generate fantastic profits. This was the best solution for Sibanye and its shareholders.