How Will Sibanye Manage Its Leverage after Acquisition Financing?



Financing the deal

Sibanye Gold (SBGL) has put together a bridge loan facility amounting to $2.7 billion from Citi (C) and HSBC. The amount includes $500.0 million as a backstop for the company’s existing debt.

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Permanent financing structure

Including this transaction, Sibanye Gold (SBGL) has concluded acquisitions worth $2.8 billion since 2015 in relation to its PGM (platinum-group metals) strategy. The transactions are all cash funded. The planned rights offering in 2017 will contribute ~25.0%, or $750.0 million, of the total capital committed by Sibanye to its PGM strategy.

The permanent financing structure for Sibanye after the Stillwater transaction will include $0.30 billion from the existing Stillwater Mining (SWC) cash balance. Sibanye is also planning to do a rights issue in 2017 of $750.0 million. While the company wants to minimize dilution, it also wants to manage its leverage.

The company is worried that if it takes on too much debt, its cost of debt will rise due to a lower bond market rating. During its conference call about the transaction, the company maintained that it could do a larger rights offering, probably up to $1.0 billion, but that nothing less than $750.0 million would do.

Financial leverage

Sibanye Gold has suggested that after doing a $750.0 million rights offering, its leverage would fall to 1.5x EBITDA (earnings before interest, tax, depreciation, and amortization). It will be 2.2x to begin with. The company also intends to maintain a prudent balance sheet in order to support its industry-leading dividend policy.

Among its South African peers (GDX) (GDXJ), Anglogold Ashanti (AU) and Gold Fields (GFI) have higher financial leverages than Sibanye.

We’ve looked at the financing for the deal. Now it’s important to see what the analyst sentiment is for the deal. That could help you gauge the merits of the deal.


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