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Britain's competition watchdog to examine Sibanye-Lonmin deal

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* Delay raises risk of deal failure, says analyst
* Layoffs pose hurdle to South African approval
* Shares in Lonmin, Sibanye fall (Updates with Sibanye-Stillwater quote)

LONDON, May 15 (Reuters) - Britain's Competition and Markets Authority (CMA) said on Tuesday it would examine whether a takeover of miner Lonmin by South Africa's Sibanye-Stillwater would reduce competition.

The 285 million pound ($386 million) deal, which would create the world's No.2 platinum producer, faces several hurdles including Lonmin's shrinking cash balance, a stronger rand and competition approval in South Africa.

By 1130 GMT, Lonmin shares had slipped 3.4 percent in London, while Sibanye's were down 4.9 percent in Johannesburg.

Precious metals miner Sibanye-Stillwater made an all-share offer for London-listed Lonmin in December.

The companies said at the time that the transaction was subject to approval from shareholders and competition clearance in Britain, South Africa and possibly the European Union.

Cash-strapped Lonmin is the world's third-largest platinum producer and Sibanye-Stillwater is the fourth-largest.

A Lonmin spokeswoman said notification was filed to the South African Competition Commission on March 13, followed by the CMA on May 11.

Sibanye was not immediately available for comment.

"The longer the delay, the greater the potential for transaction failure, since the likelier it would be that Lonmin would be in net debt," Shore Capital analyst Yuen Low said.

"Even supposing the CMA approved the transaction, there could be delays to transaction," Low said.

Sibanye has said it will not recommend the transaction to shareholders if Lonmin fails to retain a positive cash balance by the time the deal is scheduled to close in the second half of the year.

Sibanye, which has made a string of acquisitions in recent years, would cut loss-making production after the acquisition, the chief financial officer of Sibanye's U.S region said.

"If we've got ounces that aren't covering their costs they will be taken out... we have to do that. We can't let our shareholders absorb those kind of expenses," Justin Froneman told the Bloomberg Intelligence Precious Metals Forum in London.

Lonmin and Sibanye have projected that 12,600 jobs would be cut at Lonmin in the next three years as expensive production is wound down.

Layoffs are a central issue for competition approval in South Africa, where unemployment runs at about 28 percent.

If the merger were delayed or blocked it could place all Lonmin's 33,000 jobs at risk, Lonmin Chief Executive Ben Magara said on Monday in a results presentation.

Sibanye and Lonmin have an in-principle agreement to discuss asset acquisitions should the deal not conclude, they said.

Blocking the deal would also trigger Lonmin's debt covenants and require the platinum miner to pay $150 million in 20 days.

Credit waivers were granted by Lonmin's lenders in January and prevented the miner from defaulting but it still faces liquidity challenges, its finance head said.

Sibanye said on Tuesday that the South African central bank approved the transaction.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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