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Sibanye sees 1.5B rand in annual synergies on Lonmin acquisition

Sibanye Gold Ltd.'s proposed acquisition of South African platinum group metals producer Lonmin Plc will be "earnings enhancing by 2021," CEO Neal Froneman said during a Dec. 14 conference call following the announcement of the deal.

Sibanye has agreed on terms of an all-share offer to wholly acquire Lonmin, valuing the company at about £285 million.

During his presentation, Froneman outlined the company's plans for the restructuring and retrenchment of Lonmin over the next few years following the acquisition.

"If you look at this from a Sibanye point of view, the transaction is net asset value accretive," he said, adding that the acquisition was particularly attractive given that the PGM industry is currently in a low point in the cycle.

In terms of earnings, he said pretax synergies would amount to approximately 1.5 billion South African rand per year by 2021. This will include overhead costs of 730 million rand per year, which is a conservative estimate, according to Froneman.

As part of the acquisition, the London office will close and the Lonmin vehicle will delist from the London Stock Exchange.

Elaborating on Sibanye's CapEx plans for Lonmin over the next few years, Froneman said that while the projects that form the base of CapEx are promising, it would require a "huge bump" in spending to maintain a flat production profile. As such, Sibanye is adopting a "lower for longer" revised operational plan, which stipulates a steady reduction in production volumes and the retirement of first-generation shafts into maintenance.

As a result, approximately 12,600 employees will be laid off over the next three years, with potential for a further 890 staff to be cut.