Sibanye to acquire Stillwater for US$2.2B

Sibanye Gold, the largest producer of gold from mines in South Africa and among the top-10 gold producers globally, will pay US$2.2 billion to acquire Stillwater Mining (NYSE: SWC), the only U.S. platinum group metals (PGMs) miner and the largest primary producer outside South Africa and Russia.

The acquisition would mark Sibanye’s first investment outside South Africa and its third investment in PGMs over the last 15 months.

The all-cash transaction valued at US$18 per share represents a 23% premium to Stillwater’s prior day closing share price and a 61% premium to Stillwater’s volume-weighted average share price over the last 52 weeks.

Sibanye says the acquisition would enhance cash flow generation through value-accretive growth and represents a “transformational” opportunity to create a premier, global precious metals miner with a balanced portfolio of gold and PGM assets at a favourable point in the commodity cycle.

Stillwater produced a total of 402,900 oz. palladium and 117,000 oz. platinum last year. The company’s operations in south-central Montana consist of two underground PGM mines, Stillwater and East Boulder, which are situated along the J-M Reef, the only known significant source of PGMs in the U.S. and the highest-grade PGM deposit in the world.

Concentrating plants at both mines upgrade extracted ore to concentrate, and the company operates a smelter, refinery and laboratory at its metallurgical complex in Columbus, Mont., to further upgrade the concentrate to a PGM-rich filter cake.

Part of the company’s operations at its Columbus complex is recycling spent catalyst material to recover PGMs, and the facility is the largest PGM recycler in the world.

Last year it processed 551,000 oz. recycled palladium, platinum and rhodium. In this year’s third quarter, recycling volumes hit a record 175,000 oz. PGMs processed.

A furnace pour at one of Stillwater Mining’s operating facilities. Credit: Stillwater Mining.

The company’s Blitz project could be complete in early 2018. When it hits steady production in 2021, Blitz is expected to produce 300,000 oz. PGMs annually.

Stillwater’s proven and probable reserves measure 39.4 million tonnes grading 15.6 grams per tonne for 19.9 million contained oz. platinum and palladium (78% palladium and 22% platinum), and support a more than 25-year mine life.

“I consider them tier-one assets and world-class assets, and they position Sibanye as a globally competitive South African mining champion,” Neal Froneman, Sibanye Gold’s CEO, said on a conference call from Johannesburg. “They add two low-cost PGM mines, high-grade reserves that support 25 years of life … lots of organic growth … The PGM mines-to-market business is also important. It’s something we need to progress in South Africa still, and we certainly will.

“We have conducted an extensive due diligence. It’s a friendly transaction. We’ve had total cooperation from Stillwater, and we understand these assets well,” he continued, adding that Stillwater is a “well-run” company under the leadership of Mick McMullen, its CEO.

“Mick McMullen and his team have done a fantastic job. We are not positioning this as a turnaround story, but there is some room to optimize it a little bit more.”

Froneman says he believes the many rationales for the transaction include valuation, re-rating, lower costs, cash flow per share and a lower financing cost. Stillwater’s assets generate cash and cover their own capital, he says, and as Blitz ramps up, it will not only generate cash but “will help us maintain our industry-leading dividend.”

The deal also helps balance Sibanye’s portfolio, Froneman says, noting that after the transaction, 31% of its production will come from the U.S., “which is fundamental in driving down perceived risk.” Sibanye “has all its assets in South Africa, and having exposure to more stable jurisdictions with tier-one assets should mean an improvement in multiples.”

As for the management’s view of PGMs, Froneman says Sibanye “has a really positive view on palladium.”

In addition to its assets in the U.S., Stillwater owns the Marathon PGM-copper deposit in Ontario, and the Altar porphyry copper-gold deposit in Argentina’s San Juan province.

Sibanye’s two largest shareholders Gold One International and Public Investment Corp. (which together own 29% of the company’s issued share capital) support the deal, while Stillwater’s board has unanimously approved the transaction.

As of Sept. 30, Stillwater’s cash and investments amounted to US$439 million, with a US$269-million total debt on its balance sheet.

Sibanye has a US$2.7-billion bridge loan commitment from Citi and HSBC to fund the transaction.

The transaction could close in the second quarter of 2017.

“Although many of you would not have expected us to buy assets in the United States … this fits into our strategy of creating a premier gold and PGM mining company,” Froneman said. “We haven’t overpaid for this asset, but it’s a good price for the sellers as well.”

In addition to this latest transaction with Stillwater, over the last 15 months, Sibanye has bought the Rustenburg platinum operations from Anglo American Platinum Ltd. in a deal worth US$326 million, and acquired Aquarius Platinum for US$294 million, bringing the total value of its three PGM-related acquisitions to US$2.8 billion.