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Sibanye Gold to Acquire Stillwater Mining: What Are the Benefits?

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Dec. 14 2016, Updated 4:31 p.m. ET

Acquisition of Stillwater Mining

On December 9, 2016, Sibanye Gold (SBGL) announced that it has entered into an agreement with Stillwater Mining (SWC) to acquire all its stock for $18 per share in cash. That amounts to $2.2 billion in aggregate.

The acquisition price represents a premium of 23.0% to Stillwater’s closing price the previous day and a 61.0% premium to its volume-weighted share price 52 weeks before the acquisition announcement. According to Stillwater, the transaction represents a 14.0x multiple of the consensus 2017 EBITDA (earnings before interest, tax, depreciation, and amortization) estimate. Sibanye held a conference call on December 9, 2016, to discuss the transaction.

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Acquisition rationale

In the past year, Sibanye has made acquisitions in the PGM (platinum-group metals) space. The company is transforming itself into a PGM producer from a pure-play gold producer. In the rest of this series, we’ll take a look at the benefits of its pending acquisition of Stillwater Mining.

In a press release following the announcement, Sibanye Gold’s CEO (chief executive officer) Neal Froneman said, “This Transaction balances Sibanye’s portfolio operationally and geographically with the addition of a world-class operation in an attractive mining jurisdiction.”

Mergers and acquisitions in the precious metals space

Precious metal miners (GDX) (GDXJ) have been cutting costs and lowering their financial leverages. These measures have positioned them well to take advantage of potential merger and acquisition opportunities in the precious metals and mining space.

Sibanye Gold’s acquisition of Stillwater Mining follows other major transactions such as Tahoe Resources’ (TAHO) acquisition of Lake Shore Gold (LSG) for $540.0 million in February and Goldcorp’s (GG) acquisition of Kaminak Gold. Later in this series, we’ll take a closer look at Sibanye Gold’s acquisition of Stillwater Mining and its rationale.

In the next part of the series, we’ll look at the price reactions of both companies to the acquisition agreement and the reasons behind them.

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