South African gold mining company Sibanye Gold Ltd. announced plans to purchase Stillwater Mining Co. for $2.2 billion. Stillwater Mining is an American-based palladium and platinum miner. The purchase would be Sibanye Gold’s first move to diversity beyond gold mining.
The Wall Street Journal reported that the purchase is Sibanye’s third platinum acquisition since late 2015 and would make the company, which until last year was solely a gold miner, the world’s third largest platinum producer. The move is a vote of confidence in platinum in addition to a strategic diversification away from the often difficult operating environment in South Africa.
Sibanye has a long and storied history in the mining industry. It was spun off in 2013 from three aging South African mines held by Gold Fields Ltd., a company founded by colonial pioneer Cecil John Rhodes.
In a press release, Stillwater said its board had approved the deal. Stillwater is based in Littleton, CO and has two mines in Montana and Colorado. The $18-a-share bid represents a 23 percent premium to Stillwater’s closing price on Dec. 8. The two largest shareholders of Johannesburg’s Sibanye have confirmed their support of the deal.
Sibanye Chief Executive Neal Froneman said in a call on Friday that the company plans to raise new debt and equity through a rights issue sometime in the next year of at least $750 million.
Sibanye’s pivot from gold to the white metal at a time when prices were low for both was prescient. Prices for platinum have risen around 6 percent this year to around $942 an ounce, while gold is up around 11 percent at $1,170 an ounce.
Froneman turned around the company’s gold operations by reducing inefficiencies, partly by cutting jobs and restructuring management in addition to changing the culture at the mines.
Stillwater is an attractive acquisition because it generates cash, with processing facilities and a recycling operation that should give Sibanye strategic insight into the market, Froneman said. Sibanye believes the transaction will improve earnings a share.
Froneman said Sibanye remains committed to South Africa, despite difficulties, such as aging infrastructure, unreliable electricity and often disruptive labor unions, “This should not be seen as a first step in exiting South Africa.”
Sibanye, which means “we are one” in Nelson Mandela’s native Xhosa language, agreed in September 2015 to pay at least 4.5 billion South African rand ($288.5 million) for an old mine in the platinum town of Rustenburg.
The mine—which was owned by Anglo American Platinum Ltd., or Amplats, a majority-owned unit of globally-diversified miner Anglo American PLC—was one of Amplats’s most labor-intensive assets.
Less than a month after announcing its Rustenburg purchase, Sibanye offered $294 million for nearby mines owned by Australia’s Aquarius Platinum Ltd., which has operations in South Africa and Zimbabwe. The two deals, plus the Stillwater purchase are expected to turn South Africa’s largest gold producer by output into one the world’s top four platinum producers as well. The latter deal gives Sibanye a foothold in Zimbabwe, home of the world’s second-largest platinum reserves after South Africa.