South African company to acquire Stillwater Mining Company for $2.2 billion – Billings Gazette Dec. 10, 2016

By Erik Olson

Stillwater Mining Co. announced Friday a deal to sell to a South African mining company for $2.2 billion, which would effectively end Stillwater’s two-decade run as a publicly-traded firm.

Sibanye Gold Limited agreed to pay $18 per share in cash for Columbus-based Stillwater, Montana’s largest mining company. The deal is expected to close in the second quarter of 2017.

The sales price represents a 61 percent premium over Stillwater’s average sales price over the last 52 weeks and a 25 percent premium over the last 30 days.

It also signals that the South Africans are impressed by Stillwater’s improved performance over the last year in its mines in the Beartooth foothills, Stillwater CEO Mick McMullen said Friday morning.

“They really like what we’ve done. They actually want to come over and learn from some of the stuff we’ve done and take those practices back to South Africa,” McMullen said in a telephone interview from New York City.

The news came as a surprise to workers at the mine, said Scott McGinnis, president of United Steelworkers local 11-0001.

“Everybody so far is just trying to process it… Everybody just woke up to it. I’ve been on the phone all morning with management, the international, my people. They’re telling us it’s business as usual,” he said Friday morning.

McMullen said he and other members of Stillwater management have been on the phone informing managers and employees since the deal closed early Friday. He said he wants to ensure workers that their daily routines won’t change immediately, and they should continue to operate safely.

He added that no decisions about adding or cutting workers have been made. Sibanye officials, who have toured the Montana sites, will be flying in over the weekend to meet with employees.

Neal Froneman, CEO of Sibanye, told The Wall Street Journal Friday that he doesn’t plan to run the business with a new team from South Africa. He has previous experience in U.S. mining.

“It’s a jurisdiction I quite like. With Mr. Trump becoming president, it didn’t make us go fast or slower, but fortuitously, he’s probably more friendly toward mining and sees the necessity of it,” Froneman told The Journal.

Stock rises

Shares of Stillwater surged about 18 percent at the news Friday, closing at $17.32.

The transaction has been approved by the boards of directors of both companies. It still requires regulatory approval of the U.S. and South African governments and a majority vote of shareholders for both companies.

McMullen said that the deal already has the blessing of two of Sibanye’s largest shareholder groups. One of those is the South African government’s pension fund.

The sale also made sense because of the strengthening U.S. dollar, which has hurt Stillwater in export markets, McMullen said. It’s one risk Stillwater could not mitigate, but Sibanye can because its costs are counted in South African currency, the rand, he said.

“Every time the dollar gets stronger, our competitors get a little bit more competitive,” he said.

In March, McMullen had hinted at the possibility of a merger when Stillwater shares were trading below $10. Speaking at a BMO Capital Markets industry conference, McMullen said he was “on speed dial” with multiple investment bankers interested in buying low on Stillwater.

He declined Friday to describe the roots of the deal with Sibanye, saying the company will file documents with the U.S. Securities and Exchange Commission describing the timeline.

South Africa’s largest gold producer

Sibanye is publicly traded on the New York Stock Exchange and is South Africa’s largest gold producer. Shares fell about 15 percent Friday in response to the news, closing at $7.10.

Until last year, gold was Sibanye’s only commodity. The company bought two smaller South African producers of platinum groups metals within the last year, and the Stillwater purchase would make the company the world’s third-largest platinum producer.

The mining industry has struggled to expand within South Africa’s borders because of political turmoil surrounding President Jacob Zuma, Reuters reported in November at a London mining conference.

“Right now is the worst sentiment I’ve seen from an investment perspective… It’s just very clear, we sit on a knife edge as an industry — it could well collapse and that means it’s unlikely that Africa’s potential will be realized because resources will be sterilized,” Froneman, the Sibanye CEO, told Reuters in November.

Like Stillwater, Sibanye also uses a unionized workforce, McMullen said. About 40 percent of Sibanye’s shareholders are in the United States, he added.

Stillwater is the only North American producer of platinum and palladium. It operates its main Stillwater mine near Nye, the East Boulder mine near Big Timber and a recycling smelter in Columbus.

The company has also launched its $250 million Blitz expansion of the Stillwater mine, which will begin production within two years.

Blitz is expected to increase the life of the mine up to two decades and increase production by 270,000 to 330,000 ounces annually, according to Stillwater. That represents about 50 to 60 percent of Stillwater’s total production in 2015.

Good Neighbor Agreement

If the deal is approved, Sibanye would still be subject to the 2000 Good Neighbor Agreement with the Northern Plains Resource Council.

The agreement requires the owners of the mines to work with and inform local communities about any activity that could cause damages to the surrounding environment, including water quality, according to Billings-based Northern Plains.

Stillwater has undergone a big turnaround this year after laying off 119 workers in the summer of 2015 after prices of precious metals collapsed. In January, the company signed a new four-year deal with workers at the Stillwater mine, settling a months-long contract dispute.

In the third quarter of this year, Stillwater officials reported a $12.6 million profit, and nearly all laid-off workers had been hired back at Blitz or to replace other workers who had left.

Stillwater has about 1,150 hourly workers and 1,400 total employees in Montana.

Stillwater Mining became publicly traded on the New York Stock Exchange in 1994. Since then, different groups have taken control, including a Russian mining company Norilsk Nickle in the early 2000s.

In 2013, a group of activist investors led by former Montana Gov. Brian Schweitzer bought enough shares to oust Stillwater’s board members and install their own slate.

Schweitzer took over as chairman of the board and hired McMullen, a veteran of the mining industry in Australia.