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Top African bank tells Lonmin investors to reject merger with Sibanye

Standard Bank Group Ltd., Africa's biggest bank, advised Lonmin PLC investors to reject the takeover bid by Sibanye Gold Ltd. at an upcoming shareholder meeting in London as the deal undervalues the platinum miner's assets by about 6.64 billion South African rand, Bloomberg News reported May 24, citing a note to clients from Standard Bank Group subsidiary SBG Securities (Pty.) Ltd.

SBG Securities analyst Leroy Mnguni said the Sibanye offer equals 11.60 rand per Lonmin share while Lonmin's value is 45% higher when factoring in current metal prices, and worth 35.06 rand after factoring in assets such as the suspended K4 shaft at its Marikana operation.

Mnguni also noted a shareholder overlap between the two companies, with 15 of the top 20 Lonmin investors also holding Sibanye stock, which indicates the deal may get the backing required to go through. Sibanye needs the support of 75% of Lonmin's shareholders at the meeting scheduled for May 28.

Hurbey Geldenhuys, an analyst with Vunani Securities (Pty.) Ltd., said in an interview that Lonmin shareholders should not consider anything less than a 2-to-1 share offer. He said a higher valuation is justified by improved palladium prices and Lonmin's strong financial results in the March quarter, and outlined an alternative route.

"A merger is not the only option open to Lonmin, it has some good quality assets that it can sell," Geldenhuys told S&P Global Market Intelligence. The sentiment was shared by Mnguni, who said the miner could sell some assets to extend the life of its relatively low-cost mining shafts.

The takeover was originally proposed in December 2017, when Lonmin was battling with poor metal prices and working to reduce debt. However, there has been a drop in Sibanye's stock price since the deal was announced, while Lonmin's stock price improved.

The situation was recently complicated by Sibanye's public disclosure that its increased offer was final. In April, the company increased its offer to 1 new Sibanye share for each Lonmin share held as a result of improved metal pricing.