Reaction after acquisition announcement
After Sibanye Gold (SBGL) announced the acquisition of Stillwater Mining (SWC), Stillwater stock rose 18.0%. The significant rise was due mainly to the premium offered by Sibanye to acquire Stillwater shares. Sibanye stock, however, fell 15.0% after the announcement.
Investors are probably concerned that Sibanye is paying too much for the acquisition. As we saw in the previous part of this series, the price is 20.0% above Stillwater’s 20-day volume-weighted average closing share price.
The aggregate amount of $2.2 billion is also higher than Sibanye’s market capitalization of $1.9 billion. As we’ll see later in this series, some analysts feel the valuation for the deal is quite full.
South African miners
South African mining stocks soared in the first half of 2016. The uptrend was mainly driven by rising gold prices through a stronger US dollar (UUP) (USDU) and a weaker South African rand. But after that, the strength in the rand and a general weakness in gold prices took their toll on miners’ performances.
Sibanye’s price performance
The above graph shows the 2016 price movement for South African gold companies. On a year-to-date (or YTD) basis, as of December 12, 2016, Harmony Gold (HMY) has risen 94.0%. That’s higher than the 50.0% rise in the VanEck Vectors Gold Miners ETF (GDX) in the same period.
Gold prices have risen 8.0%. But after an exceptional run in the first half of the year, miners have given up much of their gains. Sibanye Gold (SBGL) has risen 16.0%, while Anglogold Ashanti (AU) and Gold Fields (GFI) have risen 42.0% and 1.0%, respectively.
Along with Harmony, Sibanye is much more exposed to South Africa than any of the other miners. That position has made it much more leveraged to the rise in gold prices and the depreciation of the rand.
Let’s move on to the next part, where we’ll look at Sibanye’s journey of becoming a PGD (platinum-group metals) producer from a pure-play gold miner.