Shares of gold and platinum miner Sibanye-Stillwater (SBSW) rose 12% in the first hour or so of trading on Oct. 21. The jump comes on the heels of news from the precious metals company that it redeemed a convertible note. But there's a little more to this story.
Sibanye-Stillwater is the result of the $2.2 billion acquisition of Stillwater by Sibanye in 2017. The purpose of the move was to shift Sibanye's portfolio toward platinum group metals, which was Stillwater's main product. It was a material transformation of the company, but it was an expensive deal. Long-term debt increased by around 180% in 2017 alone, and the company's debt-to-equity ratio more than doubled.
Since that point, Sibanye-Stillwater has been working to continue its transformation and deal with the leverage it took on to get the deal done. With regard to the latter issue, as of the second quarter of 2020, the company's debt-to-equity ratio was back down to around 0.6 times from a peak of more than 1.2 times. The most recent announcement furthers the miner's efforts on this front, as it announced the redemption of a $450 million convertible note it issued in conjunction with the Stillwater acquisition. Of that total, investors chose to convert $383.8 million worth of bonds into stock. The remaining $800,000 or so were redeemed for cash. All in, this move will increase Sibanye-Stillwater's financial flexibility and puts the 2017 acquisition just a little bit further in the rearview mirror.
Sibanye-Stillwater's production mix has changed dramatically since the merger. Today, after further acquisitions and development projects, roughly 90% of the company's adjusted EBITDA is related to platinum group metals, with the rest from gold. And now that the company has made material strides in reducing its leverage, this convertible debt transaction included, the company has reinstated its dividend. Investors are, perhaps, justifiably excited by the fact that Sibanye-Stillwater may finally be through with its big makeover.