Sibanye Gold Ltd. - Proposed US$2.2bn acquisition of Stillwater Mining
Sibanye looks to increase PGM exposure further through US $2.2bn SWC acquisition
Acquisition of Stillwater: The M&A run from Sibanye continues, making it three deals this year in the PGM space, after Aquarius and Rustenburg. The company has announced a proposed US$18/sh, or US$2.2bn, cash deal (funded by a mixture of cash, US$2.7bn of debt (in order to repay SWC’s US$0.5bn of convertible debentures) and an (at least) US$750m rights issue) to acquire US-listed PGM producer Stillwater Mining; this is an 8% premium to our published NAV (SWC covered by RBC Analyst Sam Crittenden), a 23% premium to yesterday’s close and a 20% premium to the 20 day VWAP.
Longer term positives vs. short term premium: SGL has reiterated its appetite to grow in the PGM space, and this deal (i) exposes it increasingly to palladium, our preferred PGM metal on a supply/demand basis; (ii) gives access to increasing free cash flow through increasing, lower cost production at Stillwater's Blitz zone (270-330koz 2E by 2021/22); (iii) reduces Sibanye's geopolitical risk through operational exposure to North America; and (iv) gives exposure to further market insight through its recycling business. At a first glance, the price looks higher than our valuation, and Sibanye shares are trading off ~16% on the news, in our view likely due to (i) the size of the deal (being ~10% more than its own market cap); (ii) the rights issue overhang; and (iii) concern over the sustainability of the dividend. Further, Stillwater shares tend to trade at a premium (9.8x FY17E Base Case EV/EBITDA) as it offers investors PGM exposure without the associated South African risk; this is, in our view, unlikely to transfer fully into Sibanye (trading at ~3.3x EV/EBITDA at spot), given its (until now) almost 100% exposure to South Africa (the exception being its 50% interest in Mimosa - Zimbabwe).
Further details: Sibanye has announced a US$18/sh, or US$2.2bn cash deal to acquire US-listed Stillwater Mining. In 2016, SWC expects to produce 535-545koz 2E PGM (split ~78% palladium/~22% platinum) at a total cash cost (net of by-products of US$430/oz-US$455/oz). Further, the Blitz project, which should complete in 2018 and ramp up to full production of 270-330koz (2E) by 2021/22, is expected to deliver lower cost ounces which will further reduce average cash costs. The company expects the deal to close in Q2/17. At spot, Sibanye should end 2016 with net debt to EBITDA of 0.6x. The company expects a ND/EBITDA ratio of no less than 1.5x by end-2017.