Sibanye agrees to raise offer for Lonmin on metal price gain

Sibanye Gold agreed to raise its all-share offer for platinum miner Lonmin, citing an increase in metal prices since the deal was announced in December 2017.

The increase should help bolster support from Lonmin investors, who still need to vote on the takeover.

It also signals Sibanye boss Neal Froneman’s determination to get the deal done, as the company needs access to Lonmin’s metal-processing facilities in South Africa.

Prices for both of Lonmin’s key metals have increased sharply in recent months. Palladium rose to repeated records early in 2019 amid concerns about a prolonged deficit and platinum has rallied 11% this year. Still, while Sibanye has boosted the share ratio it’s offering to Lonmin investors, the value of the deal remains lower than when it was announced, after the company’s share price fell and it sold new equity this month.

“It’s a small improvement, it should keep Lonmin shareholders happy,” said Rene Hochreiter, an analyst at Noah Capital Markets. “It’s a little bit extra to make the deal go ahead.”

Sibanye and Lonmin have sent out circulars asking shareholders to vote on the new offer and the deal is expected to become effective June 7.

The Numbers

Sibanye will now offer one of its shares for every Lonmin share, compared with the original 0.967 of a share. The latest offer is valued at 226 million pounds ($292 million), or 77.4 pence per Lonmin share, based on the April 23 closing price.

When the offer was announced, Sibanye valued it at 285 million pounds, or 100 pence per Lonmin share, based on a 30-day average weighted share price. Sibanye has faced a tumultuous period since the Lonmin deal was first announced, ranging from a spike in fatal accidents at its mines last year to investor concerns about the company’s debt levels and a damaging five-month strike at its South African gold mines that was eventually called off last week.

For Lonmin, the takeover represented a lifeline following years of losses and after the company was forced to seek debt-covenant waivers from lenders. The increase in platinum-group metal prices hasn’t changed the fact that Lonmin “continues to be financially constrained and unable to fund the significant investment required to sustain its business and associated employment,” the companies said on Thursday.

In addition to requiring shareholder approval, the deal is also facing a legal challenge from the Association of Mineworkers and Construction Union, which appealed the conditional approval granted by South Africa’s competition authorities.

Lonmin shares rose 2.6% to R13.89 rand by the close in Johannesburg Thursday, while Sibanye added 0.1%.

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