THE BOTTOM LINE
The suite life beckons for Sibanye after Lonmin deal
Takeover looks nearly done, leaving shareholders with a pile of cash and a nice new array of platinum mines
It looks ever more likely the takeover of Lonmin by Sibanye-Stillwater in an all-share deal is going to succeed, with the world’s third-largest platinum miner actively managing its balance sheet.
While operationally the company has hit its stride, with a strong run in safety and the ticking over of its big mines (apart from Rowland with a small miss in the year) and higher-than-forecast production, the balance sheet has remained an area of concern.
Sibanye CEO Neal Froneman took a swipe at Lonmin early in 2018, warning that his shareholders could vote against the transaction if there was too much debt on Lonmin’s balance sheet. He has a point. Sibanye is sitting with a hefty chunk of debt after the $2.2bn cash purchase of Stillwater Mining in the US.
Lonmin has a veritable sword of Damocles hanging over it, with a $150m debt repayment pending if the Sibanye deal fails. While the company had net cash of $114m by the end of its 2018 financial year in September, its monthly operating costs and narrow margins on its mines would quickly erode that tiny buffer.
Lonmin has put in place a $200m deal for a Jiangxi Copper Company associate to buy platinum and palladium for that value plus a 15% margin over a three-year period.
Lonmin will immediately repay the $150m debt it has and put $50m onto its balance sheet. It will terminate all undrawn loan facilities and shake itself free from the crippling loan covenants under which it has been toiling for some years.
If the deal is concluded in the next week or so, Sibanye shareholders would have cash of $164m (R2.3bn) in Lonmin and a suite of good mines to add to its Rustenburg footprint.