South Africa: Sibanye acquisition of US platinum mine passes antitrust conditions

The $2.2bn prospective acquisition of US firm Stillwater Mining by South African mining company Sibanye Gold has edged further on Thursday after both companies passed antitrust conditions. The antitrust conditions fall under the US’s Hart-Scott-Rodino legislation. 

Stillwater’s board accepted Sibanye’s $18-a-share offer in December and the deal is expected to be completed in the second quarter of 2017, subject to approvals by shareholders and South African authorities. If completed, the acquisition would further dilute Sibanye’s portfolio. It was entirely a South African gold producer until September 2015 but it will now become the world’s fourth-biggest platinum and third largest palladium producer as well.

Sibanye, which was created in 2013 out of former Gold Fields’ assets, began its expansion in the second half of last year with the purchase of two platinum mines. It paid R4.5bn ($291m) for a mine in Rustenburg, which it bought from Amplats; and almost exactly the same price again for platinum mines in South Africa and Zimbabwe that were owned by Aquarius Platinum.

However, the Stillwater deal is in an entirely different league: it is so much more valuable and also involves mines far from Sibanye’s home country. The Stillwater deal will also represent a much bigger move towards diversification, as the US firm generates more income from its platinum recycling business than mining. Palladium, which is a platinum group metal, is mainly used in the automotive industry.

Sibanye CEO Neal Froneman said: “The transaction is consistent with Sibanye’s strategy of creating superior value for all of our stakeholders by enhancing the cash flow generation…The transaction represents a transformational opportunity for Sibanye to acquire high quality, low-cost assets at a favourable point in the cycle.”

Calculated gamble

The strategy seems a clear gamble either that platinum will gain value faster than gold; against mining sector uncertainty in South Africa; or both. It has been a difficult couple of years for the South African mining industry. Lower than expected demand has seen output fall and revenues fall further. Although coal and iron ore prices have begun to recover, the downfall has taken its toll on the fortunes of many of the biggest mining companies operating in the country, whether South African or not.

Sibanye, which has been listed on the FTSE/JSE Top 40 index since September, denies that it is considering exiting South Africa but the Stillwater investment in particular suggests that it may be reducing its exposure to the country. The weak and unstable Rand makes trading difficult, the South African mining industry has been plagued by poor industrial relations over the past decade and mining firms have complained about the government’s new industry regulations.

Black empowerment

Through the Chamber of Mines, mining firms oppose the new Mining Charter, which will impose higher royalties and greater black economic empowerment (BEE) requirements on mining companies. BEE strategies were originally introduced for each sector when South Africa embraced democracy in 1994.

They laid down minimum proportions of non-white workers to be employed at each level, as well as the minimum equity to be held by black South Africans. Under the new Charter, mining firms will have to be at least 26% owned by black investors, while procurement prorportions from South African black-majority owned companies will have to rise to as much as 70% for some materials and services.

Roger Baxter, the CEO of the Chamber of Mines, commented: “Constructive engagement has been our traditional route but we’re not going to take this particular issue lying down…The industry made a combined loss of R37bn last year and R10bn the year before, after impairments. Now we’re faced with a whole bunch of extra levies which are going to add extra to the cost profile.”

It is too early to tell whether Sibanye’s overseas expansion will become a trend but it is possible that mining companies may look to international assets if they perceive – rightly or wrongly – that they are coming under excessive pressure at home.

Neil Ford