Sibanye-Stillwater can’t catch a break. On October 18 it announced that bushfires in Queensland, Australia, had damaged surface infrastructure at its New Century zinc tailings retreatment operation. Previously expected to contribute positively to year-end adjusted earnings before interest, tax, depreciation and amortisation (ebitda), New Century’s operations have now been suspended for a month.
A far more unsettling matter emerged eight days earlier, when a UK high court ruled Sibanye-Stillwater was not entitled to cancel an agreement to buy the Santa Rita nickel mine and the Serrote copper mine in Brazil. The way is cleared for the seller, Appian Capital Advisory, a private equity investor, to seek damages.
Appian Capital Advisory tells the FM it will seek at least $600m in compensation for the failed deal, initially priced at $1.2bn, when the matter goes to trial. The hearing is scheduled for November 2025. Sibanye-Stillwater’s argument will be that Appian Capital Advisory could have sold the same assets at least three times in terms of offers, all above $1bn, one from a consortium involving Glencore.
While any material financial consequences are likely to affect Sibanye-Stillwater only in its 2026 financial year, the judge’s ruling does add a layer of complexity to the already delicate state of Sibanye-Stillwater’s balance sheet. As it is, cash flows are under pressure from poor platinum group metals (PGM) prices, which are not recovering as quickly as expected. On top of that, the group has raised debt to fund its participation in the $713m Keliber lithium project in Finland.
According to RMB Morgan Stanley, at spot metal prices Sibanye-Stillwater will report debt of R26.2bn as of end-December, up from R18.7bn on June 30. This is equal to net debt to adjusted ebitda of about 1.9 times, which falls within renegotiated lender covenants that allow for a ratio of up to 3.5 times (from 2.5 previously) between June 2024 and June 2025. The covenant is reduced to three times net debt to ebitda between July 2025 and December 31 2025.
To fall comfortably within these covenants, Sibanye-Stillwater has been selling royalty streams on gold production, with another tranche of forward sales in gold and base metals due from its PGM production. The company has raised commercial debt, and has recently embarked on negotiations to sell at least part of its uranium resources.
What Sibanye-Stillwater most needs is a recovery in PGMs; this remains frustratingly elusive
But it will soon have to make a call on a $490m equity contribution towards Rhyolite Ridge, a lithium-boron project in the US which recently — and somewhat surprisingly — received its environmental permit. It is surprising because permitting normally takes a long time. But the US is in a hurry to respond to China’s control of the critical minerals supply chain.
The project still has to meet feasibility targets, and therefore Sibanye-Stillwater’s commitment to Rhyolite Ridge is by no means assured, says the miner’s spokesperson, James Wellsted.
Yet failing to participate in the project would dent Sibanye-Stillwater’s strategic ambition to position itself in the West’s response to China’s chokehold over critical minerals. With Rhyolite Ridge and Keliber, the company could have production of about 37,000t of lithium metal a year. That would have placed it behind Albemarle, the $11bn US lithium miner that produced 39,000t in 2023 and is the world’s largest.
Structurally, the lithium market is small, while the mineral is abundant, as Tesla founder Elon Musk has observed, calling its availability “ridiculous”. It makes for a volatile market, susceptible to blowouts. This is potentially off-putting to carmakers, which use the mineral in the manufacture of electric vehicle batteries.
Supply doubled to about 1Mt of lithium carbonate equivalent between 2020 and 2024 and drove lithium prices down about 80% since its January 2023 peak. It’s one of the reasons BHP hasn’t entered it, and it’s why the majors that operate in the sector — such as Rio Tinto — are seeking scale, as evidenced by its recent $6.7bn cash offer for Arcadium Lithium.
There are other, shorter-term complications for Sibanye-Stillwater. One is the unresolved gold industry wage negotiations. A delay in concluding an appropriate pay deal with unions, which will be amid record rand gold prices, could mean operational disruption, which is the last thing Sibanye-Stillwater needs while prices for its PGMs remain pedestrian.
Despite these pressures, RMB Morgan Stanley analysts aren’t changing their outlook on Sibanye-Stillwater’s valuation. “In our view, the outcome of the damages trial is significantly uncertain [and does] not warrant an adjustment to our price target of R17.50 a share at this stage; our bear base of 500c a share provides sufficient leeway in a negative scenario,” it says in a report.
What Sibanye-Stillwater most needs is a recovery in PGMs; this remains frustratingly elusive. UBS analyst Steven Friedman says: “While PGM fundamentals continue to look supportive and we characterise the sentiment as cautiously optimistic, we believe investors need to see improvement in real data (macro and physical commodity demand) to support a further recovery in the PGM basket price and drive further upside in the miners.”
Sibanye-Stillwater’s decision to cancel a share purchase agreement for the Santa Rita nickel and Serrote copper-gold mines in Brazil was based on a geotechnical event at Santa Rita. According to Sibanye-Stillwater in January 2022, the collapse of part of the open pit wall was a material adverse event (MAE). The collapse would halve Santa Rita’s mine life and so it pulled out of the arrangement — a development that drew applause from analysts.
But a judgment handed down by Mr Justice Butcher in the High Court of England and Wales on October 10 found that Sibanye-Stillwater’s decision was flawed largely because due process hadn’t been followed.
Neal Froneman, Sibanye-Stillwater CEO, hadn’t read the definition of an MAE in the share purchase agreement. “I had a good feeling that it was going to be satisfied,” he told the court, while giving evidence in September. While Froneman’s “good feeling” drew on feedback from his team at Sibanye-Stillwater, it was without full board sanction, and it was Froneman who was the final decisionmaker.
In this regard, the judge found: “It is clearly not right to say that, at the time when the letter of termination was sent, there had been a unanimous, or even a majority, expression of support by the board for the course to be taken.”
At the time Sibanye-Stillwater announced its decision to invest in the mines, in October 2021, the company had already racked up R10bn in capital commitments (mainly to the Keliber and Rhyolite Ridge mines, the latter not yet committed). At the time, analysts questioned the spending, notwithstanding nearly R25bn in headline interim earnings that year.
The judge concluded, however, that the decision to pull the Santa Rita-Serrote deals was not “reckless as to whether it was lawful”. Sibanye-Stillwater “believed” it was entitled to terminate the deal, he said.
“Though the decision was taken in an overly hurried manner, where relevant information was not adequately shared and by a process ... it was nevertheless a decision which appeared to those concerned to be justified,” he said.
— A FLAWED DECISION
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