Sibanye, Lonmin shareholders vote resoundingly for creation of a platinum giant

The vote is a boost for Sibanye-Stillwater, which announced the merger with Lonmin in 2017.

Sibanye-Stillwater and Lonmin shareholders voted resoundingly in favour of a merger between the two mining companies, which will create a platinum giant. 

On Tuesday, a total of 99.65 percent of shareholders who voted – representing 87 percent of total issued shares – supported a resolution that sees Sibanye-Stillwater increase its previous buyout offer for Lonmin.

This resolution relates to Sibanye-Stillwater’s decision to offer one share for each Lonmin share compared to its previous offer of 0.967 shares. This represents an increase of 3.4 percent, which Sibanye-Stillwater said was in acknowledgment of improved pricing for platinum group metals (PGMs).

On the same day, a total of 98.87 percent of Lonmin shareholders in London, where the company is headquartered, voted in favor of the merger, passing the 75 percent threshold required for the deal.  Lonmin is struggling as it was hit hard by the decline in platinum group prices and has had to work to cut spending in order to retain a positive balance sheet – as required by conditions of Sibanye-Stillwater’s proposed offer. Arguably, Lonmin needs the deal to be approved for its survival.

Shares in Sibanye increased as much as 9.6 percent on Tuesday in South Africa, while Lonmin shot up 12 percent.

The deal has faced several challenges before it got to the shareholder vote phase. Since its initial announcement in December 2017, it has faced opposition from the Association of Mineworkers and Construction Union, the majority union at Lonmin, which appealed (and later lost) a decision by the Competition Tribunal to approve the deal. 

CFO South Africa, the sister publication of M&A Africa, recently spoke to Sibanye-Stillwater’s CFO Charl Keyter (pictured) about the deal. Below is an excerpt of the interview. The full interview can be read here.

 

CFO South Africa: What is the growth potential of a combined Sibanye-Stillwater and Lonmin entity in a market where PGM prices are depressed?

Charl Keyter: The potential is to become the largest primary producer of platinum and second-largest primary producer of palladium and rhodium in the world. The combined entity will be a very good business in the next 15 to 20 years. Precious metals, excluding platinum, is about autocatalysis, vehicles and curbing emissions. It is not about size; it is about mine to market for us. The fact that we will be one of the biggest does bring some benefit to it. We will be engaging with producers and auto manufacturers, and being able to give them assurance for the supply of metal. This makes a big difference in contract negotiations.

CFO South Africa: How does Lonmin fit in the Sibanye-Stillwater strategy?

Charl Keyter: When we started out with our strategy, we had four steps in the PGM strategy: to acquire Aquarius Platinum, Rustenburg assets from Anglo American, Stillwater [ the US palladium and platinum miner that Sibanye bought for R30 billion in 2016] and then Lonmin. The latter company will take us to a mine and market company. Currently we don’t market and sell our own metals. We produce a concentrate that goes to Anglo and they then refine the metal and sell it. With the Lonmin, we will be able to produce and market metals.

CFO South Africa: How will the combined entity look like from a financial position perspective?

Charl Keyter: With Lonmin, the deal comes with no debt. We have identified cost synergies of R730 million at Lonmin and operational synergies of about R180 million. That is about nearly R1 billion worth of synergies. With the acquisition of Lonmin, the cost synergies of Lonmin comes first. The finance team will become bigger. Lonmin employs about 30 000 employees. Over the next three years, the company will lose about 10 000 to 12 000 people as some of their mine shafts come to their end of life cycle.

CFO South Africa: What should a deal look like after its completion?

Charl Keyter: For us it is about value creation. In a deal, it’s about creating value for our shareholders and other stakeholders. That is where a lot of tough negotiations on structuring a deal comes in. You want to provide the best outcome for Sibanye-Stillwater. Obviously, the counterparty wants the best outcome for their shareholders. The Stillwater deal was about growth; they were going to move from 550 000 ounces a year to 850 000 ounces by the end of 2021. But with Aquarius, Rustenburg assets and Lonmin assets, they are historically less profitable. Then it is about embarking on a turnaround strategy and leveraging the synergies.  At the end of the day, you have to assess if you took costs out.  We cannot change the revenue overnight, but we can restructure costs. In our industry, we don’t dictate commodity prices but we can control costs.