Matthew Staver | Bloomberg | Getty Images
Michael ‘Mick’ McMullen, chief executive officer of Stillwater Mining Co., speaks during the Denver Gold Forum (DGF) in Colorado Springs, Colorado, U.S., on Monday, Sept. 19, 2016.
If it goes through, the cash takeover will increase South Africa’s grip over global platinum and palladium supply and underline chief executive Neal Froneman’s determination to branch out of gold mining and South Africa.
However, the price Sibanye is offering to increase its own share of supplies of the precious metals is larger than its market value and the move triggered a sharp fall in its stock.
Sibanye said it would buy Stillwater, which operates in Montana and is the largest primary producer of platinum group metals (PMGs) outside South Africa and Russia, with a loan that it will re-finance with debt plus a rights issue of at least $750 million.
Froneman wants to cut the bullion miner’s dependence on gold and platinum in South Africa, where a volatile currency, labor strikes and strict government rules have weighed on Sibanye’s share price.
The deal, the second-biggest South African outbound M&A transaction so far this year, will make Sibanye the world’s third largest palladium producer and fourth largest platinum group metals miner, Froneman said.
Some analysts highlighted the risks as the platinum market sinks into oversupply.
But while demand from the diesel car sector for platinum, which is used in catalytic converters, is under pressure because of air pollution concerns, palladium used in hybrid petrol cars could see higher consumption and the market is in deficit.
Palladium reached its most expensive versus platinum since early 2002 last month as the U.S. election result sparked a surge in cyclical assets.
“It’s a tier one asset in palladium in the United States,” a source close to the deal said. “Normally in the U.S., there would be a 30-40 percent premium. This is around 20 percent.”
Sibanye said it would pay $18.00 per share in cash for Stillwater, a 23 percent premium over Thursday’s closing price, which it was initially financing through a $2.675 billion loan arranged by HSBC and Citigroup.
“These are some of the lowest cost ounces in the world,” said Froneman, referring to Stillwater’s operations.