/ 27 July 2018

Sibanye deaths cloud Lonmin deal

A Sibanye buyout of Lonmin could save thousands of jobs. But the mineral resources department may throw the book at Sibanye over this year’s high fatality rate.
A Sibanye buyout of Lonmin could save thousands of jobs. But the mineral resources department may throw the book at Sibanye over this year’s high fatality rate. (Sandile Ndlovu/Gallo Images/Sowetan)

Mining company Sibanye has made news recently for all the wrong reasons — 21 fatalities in eight incidents at three of its mines this year.

Its safety record is of major concern to its employees and management, as well as the government, and has potential implications for the whole platinum mining sector as Sibanye’s proposed buyout of Lonmin is widely seen as the only way to rescue the flailing mining company.

If Sibanye manages to buy Lonmin, which it hopes to do by the end of the year, Sibanye will become the second largest platinum producer in the world, with 38 909 permanent employees, compared with its rival Anglo American Platinum’s (Amplats) 25 320. The largest platinum employer is Impala Platinum with 52 012 employees.

Sibanye says it has completed its investigations into the causes of the fatalities and is now waiting for the department of mineral resources to release its findings.

Despite unions and parliamentary officials accusing the mine of being negligent, Sibanye has insisted that this is not the case.

Should the department find that the mining company was negligent, Minister of Mineral Resources Gwede Mantashe has said his department will not “hold back” in dealing with the mine.

If the Sibanye acquisition does not go through, Lonmin’s loan of $150-million, which had been waived until February next year pending the completion of the acquisition by Sibanye, will need to be paid, which Lonmin will struggle to do with its gross cash reserves of $167-million.

“Lonmin is going broke and closing down,” said Peter Major, Cadiz Corporate Solutions’ director of mining.

The company, which has 32 000 workers, is R2.9-billion in debt. The job losses that would result from the closure of Lonmin have led some analysts to speculate that the state may take over the company if there is no private rescue.

The Public Investment Corporation (PIC), which manages $150-billion of government employee pensions, owns 30% of Lonmin but, Major said, it was unlikely that the PIC would take over the mining company because of the costs of running a mine.

The PIC’s head of corporate affairs, Deon Botha, said he could not divulge the PIC’s intentions before a shareholder vote. But it is understood that the PIC believes the consolidation of Sibanye and Lonmin will alleviate the pressure the sector is now under.

Sibanye’s head of investor relations, James Wellsted, said it was waiting for the South African competition authority to clear the merger — it has received the go-ahead from Britain’s Competition and Markets Authority — and it expects to close the Lonmin transaction in the second half of this year.

Although parliamentary portfolio committee chairperson Sahlulele Luzipo has hinted in committee meetings that Sibanye’s safety record could lead to it being placed under curatorship or have its mining licence suspended, mining lawyer Jonathan Veeran said the government could not place a company under curatorship if it was not bankrupt, although it could suspend a mining licence.

Veeran said the minister of mineral resources could, under section 47 of the Mineral and Petroleum Resources Development Act, call on a mining company to show that it is being compliant with its mining licence.

Sibanye has argued that its mining safety is in line with the industry standards, because it has all the right processes in place.

Despite the concern over Sibanye’s safety record, Major does not believe the fatalities will affect its purchase of Lonmin. He said it would be in the best interests of both companies, the workers, shareholders and the country if the merger was completed.

If Sibanye adds Lonmin to is platinum portfolio, which already includes Aquarius Platinum and many of Amplats’s previous operations, it is not just Lonmin that will win — Sibanye will get access to Lonmin’s platinum smelter and refining complex. In the long run, it will also realise R1.5-billion in savings, it noted in an earlier press briefing.

The acquisition will involve a R5.17-billion all-share takeover, which means that Lonmin shareholders will get 0.967 new shares in Sibanye for each Lonmin share, amounting to 11.3% of the “enlarged Sibanye-Stillwater group”, the company’s acquisition announcement stated. When the deal was announced in December last year, Sibanye shares were priced at R18.67.

FNB Wealth Management analyst Wayne McCurrie said that if the platinum price was higher than its current value of $844.90 an ounce, the deal might have a fighting chance of survival but for Lonmin the platinum price would have to rise well above $1 100.

“Sibanye may well be considered visionaries for buying stock at such low prices, as long as PGM [platinum group metals] prices rise significantly in the future,” said McCurrie. He added that Lonmin was selling its operations because it had “no other option at current platinum, palladium and rhodium prices”.

According to the head of communication for the mineral resources department, Ayanda Shezi, the department’s involvement in the acquisition of one mining company by another was regulated by section 11 of the mineral Act, which required the minister’s consent for the transfer of mining rights.