Sibanye Buying Long-Suffering Lonmin in $383 Million Deal

(Bloomberg) -- Sibanye Gold Ltd. plans to buy Lonmin Plc, marking the end of the smallest and most financially stressed of the world’s three biggest platinum miners.

Sibanye offered 285 million pounds ($383 million) to buy Lonmin in an all-share offer, according to a statement on Thursday. The deal, Sibanye’s fourth major acquisition in the past two years, cements the status of Chief Executive Officer Neal Froneman as a top dealmaker in platinum and gold.

A merger would “finally allow Lonmin to restructure and optimize its business,” wrote analysts at Berenberg in a research report. “We view this as a positive for Lonmin and a negative for Sibanye on a valuation basis.”

Sibanye Buying Long-Suffering Lonmin in $383 Million Deal

The deal highlights the ascendance of Sibanye, born about five years ago in a spinoff from Gold Fields Ltd., and the death of Lonmin, a company with a 108-year history stretching from Cecil Rhodes’s legacy in southern Africa to a conglomerate in the 1980s spanning mining, hotels and newspapers.

CEO Ben Magara has pushed to get Lonmin back on track and repair its reputation after the shootings at Marikana in 2012, when police killed protesting mineworkers. But it hasn’t been enough. The company has raised about $1.7 billion from shareholders in the past eight years, yet its current market value is about $215 million.

“This new beginning for Lonmin sets it up into an opportunity for a diversified company," that will be more resilient, Magara said in an interview in Johannesburg after a presentation of the deal.

Sibanye slumped 11 percent to 14.41 rand at 3:12 p.m. in Johannesburg. Lonmin jumped 8.2 percent to 13.53 rand.

Lonmin shareholders will get 0.967 new shares in Sibanye, which will be about 11.3 percent of the total company after the acquisition is complete. The acquisition has been approved by both boards.

Political Approval

The deal will need approval from Lonmin’s biggest investor, the South African state-owned Public Investment Corporation, according to Ben Davis, an analyst at Liberum Capital Ltd.

“For the PIC it’s a political decision,” which will be impacted by the outcome of the ruling African National Congress’s leadership election next week, Davis said by phone from London. If current deputy president Cyril Ramaphosa is chosen as leader of the ANC, “we suspect this deal has a far better chance of being approved, given his pro-business approach.”

One area of focus for the government will be jobs. Before the transaction Lonmin had planned to cut its staff of almost 33,000 by about 12,600 workers over the next three years due to mine-shaft closures. These reductions are still expected to take place, but the majority of the remaining jobs will be saved due to the deal, Magara said.

“The stability and sustainability of the industry is key for the economy, and the creation and retention of jobs in this sector is a critical part of that stability,” Department of Mineral Resources Minister Mosebenzi Zwane said on Twitter.

Buying Spree

When Sibanye was created in 2013, it was supposed to be a steady, dividend-paying operator of three aging but profitable South African gold mines. Instead, Froneman has led the company to acquisitions outside of gold, including the $2.2 billion takeover of Stillwater Mining Co. this year.

In 2015, Sibanye agreed to buy Aquarius Platinum Ltd. and made a deal for some aging, high-cost platinum mines from Anglo American Platinum Ltd. A year later, the Stillwater acquisition was announced.

The deals have come with a price. The Stillwater purchase left Sibanye with net borrowings more than double its annual earnings and the company canceled its dividend.

The all-share offer for Lonmin will not add to Sibanye’s debt, Froneman said.

Financial advisers on the deal include UBS Group AG, HSBC Holdings Plc and JPMorgan Cazenove Ltd., according to filings.

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