Mining Weekly

JOHANNESBURG (miningweekly.com) – Precious metals mining company Sibanye-Stillwater has made an all-share offer to acquire platinum group metals (PGMs) producer Lonmin.

The offer values Lonmin at about £285-million, or R5.15-billion.

The Lonmin board has unanimously recommend the offer to its shareholders.

The companies reported in a statement on Thursday that each Lonmin shareholder will be entitled to receive 0.967 new Sibanye-Stillwater shares for each Lonmin share held.

Following completion of the acquisition, Lonmin shareholders will hold about 11.3% of the enlarged Sibanye-Stillwater Group, with Sibanye-Stillwater shareholders holding the balance of about 88.7%.

While the transaction will be subject to certain conditions precedent, there is no break or cancellation fee. Further, should Sibanye-Stillwater shareholders not approve the transaction, there is an agreement in principle to discuss asset acquisitions.

Lonmin will be delisted from the LSE’s Aim and its corporate offices in London will be closed; however, a trading platform will be set up for London shareholders.

The transaction is expected to be concluded in the second half of 2018.

Despite having an enviable mine-to-market business with great mining assets, projects and process technology and a resilient workforce, Lonmin continued to be hamstrung by its capital structure and liquidity concerns, Lonmin CEO Ben Magara acknowledged during an investor presentation at the JSE, in Sandton, on Thursday.

He, therefore, suggested that “the combination with Sibanye-Stillwater provides a stronger platform for Lonmin shareholders and other stakeholders to benefit from the long-term upside potential of an enlarged Sibanye-Stillwater Group with greater geographical and commodity diversification.

Financial services provider SP Angel on Thursday noted that Lonmin “has struggled in recent years” and implemented a series of rationalisation measures to cut unprofitable shafts and focus on a lower level of profitable cash generative operations.

“The offer from Sibanye, a company clearly committed to the platinum sector and with a detailed understanding of running mining operations in South Africa should be a lifeline for Lonmin’s long-suffering shareholders,” SP Angel stated in a release.

Magara, nevertheless, maintained that Lonmin was cash net positive and that it has sufficient liquidity to run the business. “This gives us the confidence to sufficiently navigate the environment,” he said.

Sibanye-Stillwater CEO Neal Froneman, meanwhile, said the proposed combination with Lonmin positions the enlarged Sibanye-Stillwater Group as “a leading mine-to-market producer” of PGMs in South Africa, and added that the acquisition was the logical fourth PGM step in the group’s strategy.

The offer for Lonmin follows the acquisition of the Aquarius Platinum operations and Anglo American Platinum’s (Amplats’) Rustenburg operations, as well as the Stillwater acquisition.

Sibanye also owns and operates the Kloof, Driefontein and Cooke gold mines.

"The realisation of significant synergies between the [PGM] operations, which will deliver longer-term benefits for all stakeholders of both companies is expected to result in this being a value-accretive transaction for Sibanye-Stillwater shareholders,” he stated.

Froneman further suggested that the sizeable combined resource base, with its pipeline of advanced and early-stage projects, also offers significant growth and value upside potential under appropriate economic and market circumstances.

BENEFITS
The offer allows Lonmin shareholders to participate in the growth and value creation opportunities of the enlarged Sibanye-Stillwater Group, as well as to benefit from the realisation of synergies from the combination of Sibanye-Stillwater and Lonmin, and the exposure to any long-term recovery in the fundamentals of the PGM sector.

Sibanye-Stillwater is, meanwhile, expected to benefit from the realisation of significant synergies between the companies and their contiguous assets, as well as a potential upside from development projects.

By combining Sibanye-Stillwater's existing, and contiguous, South African PGM assets with Lonmin's operations, including Lonmin's processing facilities, Sibanye-Stillwater will be able to unlock operational synergies and become a fully integrated PGM producer in South Africa.

Froneman further stressed the long-term benefits of the mine-to-market model in South Africa, noting that Lonmin is one of only three fully integrated South African PGM producers with full ownership of a metallurgical processing complex, including smelting, base and precious metals refining facilities.

“Lonmin's  processing facilities will allow Sibanye-Stillwater in due course to smelt and refine ore from its existing Rustenburg operations, enhancing and improving the economics of those operations, while simultaneously ensuring a sustainable source of material for these facilities, therefore maximising return on assets,” said Sibanye-Stillwater.

Froneman explained that processing of the concentrate at the Lonmin facility will be executed at a lower price than at Anglo American Platinum.

Included in the base plan is the potential for a direct current arc furnace that is estimated to require R1-billion of capital and which will cater for all Rustenburg concentrate.

Sibanye-Stillwater will spend R40-million in conducting a feasibility study into the construction of the furnace next year.

Froneman believes that it is “quite feasible” to have the arc furnace in place by 2021, yet he acknowledged that other potential solutions are also being investigated.

While Froneman believes that Sibanye-Stillwater has, for now, completed its PGMs strategy, he reiterated that, in terms of a broader strategy, the group should grow its gold business, as there may be opportunity in North America to do that.

“There is no real change to our strategy,” he stated.

REVISED PLAN
Although Lonmin’s operating plan was considered an optimised solution, Sibanye-Stillwater has developed a conservative Lonmin operating plan, which is not contingent on the development of new major capital projects, thereby ensuring affordability, and limiting downside risk, while providing full upside optionality in a higher South African rand PGM price environment.

Froneman believes the “lower for longer” plan is suitable for current economic and market conditions, suggesting that the removal of the “capital humps” relating to large capital projects would lead to independence on future financing or other party involvement.

The plan also provides for flexibility in delaying mine projects, as Froneman stressed the importance of “deleveraging first”.

The revised plan includes the generation shafts to be put on care and maintenance as per the original Lonmin plan.

However, there was optionality to significantly extend operating life in a higher PGM price environment, Froneman said.

EMPLOYMENT CONCERNS
Despite the restructuring strategy, Froneman acknowledged the transaction’s impact on jobs, which risks about 12 600 jobs. He stressed that Sibanye-Stillwater has put out a profile “to be transparent and to have a proper and formal engagement”.

Subject to Section 189 consultations, the possible retrenchments are anticipated to be phased over a three-year period, primarily as a result of generation one shafts reaching the end of their reserves.

Lonmin’s headcount, currently amounting to 32 512 employees, is expected to decrease by 3 700 employees in 2018, by 5 300 in 2019, and by 3 600 in 2020.

“We have laid it out, we are not hiding. We have to deal with this and the Competition Commission has to understand that it is not merger-related. These are job losses that are going to occur – whether we step up to the plate or not,” Froneman asserted.

As a result of the merger-related synergies and the Sibanye-Stillwater revised business plan, a further 890 people could be affected.

However, Froneman pointed out that during the Rustenburg merger, the commission had allowed for the 500-odd related job reduction, which enabled Sibanye to save three conventional shafts and effectively save 20 000 jobs.

Froneman, however, acknowledged that, in the current PGM price environment, “probably most jobs are at risk”.

Magara also noted that while 60% of the platinum industry is loss-making, “the priority has been to ensure the protection of the majority of jobs”.