Sibanye Closes US$500-million Gold-Palladium Deal

Sibanye-Stillwater (NYSE:SBGL, JSE:SGL) has completed its US$500-million upfront cash payment deal through a streaming agreement with a subsidiary of Wheaton Precious Metals (TSX:WPM, NYSE:WPM).

In a Wednesday (July 25) press release, Sibanye announced that it has officially completed the gold and palladium stream agreement with Wheaton and will now put the funds towards reducing its leverage, improving capital structure and reducing financing costs.

“We will apply the upfront amount of funds from the stream to reduce our leverage to well below both the current covenant (3.5x) and future covenant (2.5x) ratio by reducing the net debt. Reducing our leverage is in line with our short term strategic goals,” Henrika Ninham, investor relations manager at Sibanye told the Investing News Network (INN).

“The stream also provides us with an improved capital structure and reduced financing cost—the streaming agreement is a long-term financing instrument with no repayment of any of the advance amount under any circumstances and no minimum delivery obligations at a cost that is lower than the company’s alternatives in international capital markets,” she added.

Ninham also noted that Sibanye will now be able to crystalize the value of by-product gold production and the increase in the price of palladium over the past couple years.

For its part, Wheaton will receive 100 percent of the gold production from the Stillwater assets over the operating life of the assets and an amount of palladium equal to 4.5 percent of palladium production from the Stillwater assets until 375,000 ounces are delivered. Afterwards, Wheaton will get 2.25 percent of palladium production until 550,000 ounces are delivered and subsequently 1 percent of palladium production for the life of the Stillwater assets.

Randy Smallwood, CEO of Wheaton, recently spoke with INN regarding the agreement and stated, “[t]he asset itself, the geological potential—this is a very well understood intrusive complex that extends for 45 kilometers. I have never invested into an orebody that’s 45 kilometers-long before, but I was sure excited for the opportunity.”

“Through the gold, we get 100 percent of it from the life of the mine and we think the life of the mine is decades, multiple decades. This is a mine that’s going to be running for many, many years into the future, “ he added.

Smallwood also noted that this is the first time that Wheaton has included palladium in its portfolio, adding that he is bullish on palladium and he believes there’s even more upside in terms of palladium prices over the next while. 

As of 11:30 a.m. EST on Thursday (July 26), Sibanye was trading at US$2.29, up 0.44 percent.

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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.