The deals in Brazil may not have worked out for Sibanye (JO: SSWJ ), but that hasn't stopped the company from marching on with other transactions.
Sibanye will acquire a 50% interest in the Kroondal and Marikana pool-and-share agreements from Anglo American (JO: AMSJ ) Platinum.
These agreements hark back to 2003 when Amplats and Aquarius Platinum agreed to pool their assets for mutual benefit. Each company retained individual ownership. The Kroondal agreement was concluded in 2003 and the Marikana agreement in 2005.
When Sibanye acquired Aquarius in 2016, it became Amplats' partner in the agreements. The Marikana operation is on care and maintenance and the Kroondal mine has a short remaining life. Between 2017 and 2020, Kroondal delivered over R8 billion in EBITDA for Amplats.To get the best out of the remaining life of Kroondal and with a view to achieving sustained employment, the best way forward is to include Sibanye's adjacent resource in the plan. This is why the companies have done this deal.
The way the deal works is that Amplats could've economically extracted the remaining mineral reserve under the existing arrangement until 2025. By using Kroondal's infrastructure to mine into Sibanye's adjacent reserve, Amplats can extract similar production by 2023 and at a lower cost. This effectively saves two years.
Once that has been achieved, Amplats will exit the agreement and transfer all assets and liabilities to Sibanye. Amplats will keep buying the concentrate from Kroondal until 2026 under the toll-and-purchase agreement that was concluded several years ago as part of the Rustenburg disposal transaction.
Amplats does not believe that the mineral resource at Marikana can be extracted economically, hence the decision to place it on care and maintenance in 2012.
Here's the really fun fact: the deal value is R1. Yes, one buck. The same buck that your parents and grandparents bragged could once upon a time buy three newspapers, a Chappies and other delights in the world.
The trick is that Sibanye is taking on all the closure costs and rehabilitation liabilities. In other words, the operations have no value to Amplats beyond the next couple of years of production, as the liabilities are believed to be equal to the assets from an Amplats standpoint. There is the potential for deferred compensation for Amplats depending on any Merensky mineralisation not declared as a mineral resource.
The Sibanye announcement notes that the life of mine is being extended to 2029 through this deal.
The transaction will need to be approved by the Competition Commission and will need Section 11 consent under the Mineral and Petroleum Resources Development Act. Given that the sustained employment of more than 2,500 people is expected to be made possible by this deal, one would hope that regulatory approvals won't be too difficult to obtain.
Disclaimer: the author is a shareholder in Sibanye
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