JOHANNESBURG (miningweekly.com) – The share price of Sibanye Gold soared on Wednesday’s announcement that the South Africa-focused company would be taking over Anglo American Platinum's (Amplats’) Rustenburg Operations in a R4.5-billion transaction that protects Sibanye from downside risk in the short term and provides Amplats with upside potential in the medium term.

The Sibanye share price hit a 10.83%-higher R19.45 in early afternoon trading and Amplats also went up 5.51% to R331.31 a share at one stage.

Sibanye CEO Neal Froneman said Sibanye would not be claiming any black economic-empowerment (BEE) credits from Amplats on these assets but would assemble a strong new broad-based BEE partnership for the Rustenburg Operations that would include employees and local communities.

There would be no job losses for Rustenburg’s 16 000 employees, who would be led by black CEO-designate Shadwick Bessit, former director of operations at Impala Platinum.

Bessit told Mining Weekly Online that Sibanye was confident that it would be able to add value and was looking forward to being in the saddle in the third quarter of 2016.

“Post competition authorities' approval, we’ll be able to move closer with the joint management to ensure that the capital gets spent and that we stick to the plan so that when we take it over there’s nothing that has not been complied with,” Bessit added.

Froneman told analysts and media at a conference attended by Creamer Media’s Mining Weekly Online that the transaction secured a meaningful entry into the platinum group metals (PGMs) sector through the acquisition of a large 89-million-ounce PGM resource and long reserve life.

He said Sibanye had expressed to the ruling African National Congress (ANC) and the Department of Mineral Resources (DMR) its desire to be the champion mining company that the ANC was seeking for South Africa.

Sibanye already mines gold and uranium and if the Rustenburg Operations transaction received the required competition authority and DMR approval, its name was likely to change to Sibanye Resources to accommodate its diversification.

Investec Securities commented in a note that the management team at both Amplats and Anglo American were delivering on promises made while still sharing in the potential upside.

“With so much uncertainty over platinum group metals prices in the near and medium term, the structure of the deal delivering greater value longer term seems the only and most sensible course of action, since an eventual supply side response will eventually lead to a recovery in prices,” Investec commented.

The transaction perimeter includes mining, processing and surface infrastructure, but excluded from the transaction are smelting and refining operations as well as the Kroondal and Marikana pooling and sharing agreements with Aquarius Platinum.

Forming part of the deal are the Thembelani mine, including Khuseleka, the Siphumelele mine, including Khomanani, as well as the trackless Bathopele operation. Both the Waterval Upper Group Two platinum concentrator and the Waterval Retrofit concentrator will, under Sibanye, continue to send material to Amplats’ Waterval smelter and refineries. Sibanye will pay R1.5-billion in cash or shares and a minimum of R3-billion over six years from free cash flows.

Should the Rustenburg Operations generate negative free cash flows, Amplats will give Sibanye R267-million a year for three years, while also buying all the concentrate until the end of 2018, when a toll arrangement will take over and Sibanye will begin marketing the metals itself.

Amplats CEO Chris Griffith outlined how the Rustenburg Operations would be run under Amplats executive head joint ventures Vishnu Pillay as a separate entity while remaining part of Amplats until the completion of the transaction.

Griffith said that management information and operational decisions would be shared with Sibanye upon confirmation of the competition authorities’ approvals.

In acquiring the Rustenburg Operations, Sibanye would become the world’s fifth largest producer of platinum at an output of 800 000 oz of PGMs a year, of which 500 000 oz would be platinum.

As owner, it is Sibanye’s intention to invest capital at a rate of R1.2-billion to R1.4-billion a year and it believes it will be able to reduce rand-per-ton costs by 10%.

When Sibanye took over Gold Fields assets, it managed to reduce rand-per-ton costs by 20% over two years.

“We’ve been able to make an entry into platinum at a favourable time in the cycle. I’m not suggesting that we’ve hit the bottom nor that it will change tomorrow,” Froneman said, adding that he foresaw supply-side constraints owing to capital cutbacks with demand drivers remaining unchanged.

The BBBEE would be low-risk vendor financed and would involve Royal Bafokeng Holdings and the Bakgatla-Ba-Kgafela community.

BBBEE discussions were on a critical completion path.

The gold division, made up of Driefontein, Kloof, Beatrix, the Cooke Section and tailings retreatment, would remain focused under Wayne Robinson and Robert van Niekerk, who heads up the uranium business, will also be part of the platinum division as senior VP as a former Amplats executive who served at the Rustenburg Operations.

In response to Deutsche Bank precious metals analyst Patrick Mann on the acquisition of Rustenburg Operations being a potential springboard to further PGMs acquisitions, Froneman said that consolidation in the PGMs sector was necessary in these tough times to ensure survival.

“I say that, but I don’t want to create the impression that we’re now only focussed on platinum but we do see it as a very high springboard to further consolidation,” Froneman added.