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5/19/17

The Sibanye (SBGL) rights offering and sell side reality

As your humble scribe writes these words, Sibanye Gold (SBGL) is 33% down on heavy volume at the open in NY, all due to the announcement earlier today (South Africa morning time) that the company was running a discounted rights offering in order to raise the cash to buy Stillwater (SWC). 

That's the background, here's the reason for this post; Of all the things around this large-scale snafu (which investors approved on April 25th you'll recall...wonder how they're feeling now?) this section of the Mining Dot Com report on the fallout is easily my fave:
A report by Citi last week – which re-initiated coverage of Sibanye – said the weakening in the share price had now fully priced in the risks of the Stillwater deal.
It added that the Stillwater takeover was value destructive on both earnings per share and net present value per share wich would result in a 19% to 48% decrease in headline share earnings from Sibanye’s 2017 to 2022 financial years.
Following publication of the terms of the rights offer, however, the bank’s analyst, Johann Steyn, amended his position saying the dilution was far heavier than the 643 million shares issue he was expecting at only a 20% to 25% discount.
“The final terms of the rights issue is thus much more dilutive than we expected and as a result places a further downside risk to our estimates,” said Steyn. “The larger than expected discount of this rights issue could also imply that our 7% per year cost of debt assumption on the remaining $1bn to $1.65bn might be too favourable,” he added.

It just goes to underscore that the only way sell side anal ysts offer real value to clients is via procuring illegal inside information (then making it sound like assumptions or estimates). If not, they're just out there guessing like the rest of us.

UPDATE: Somebody who has previously traded in and out of SBGL and really knows their way around capital markets, "A. Reader" writes in:

 "...the purchase by SBGL was one of those hideous management decisions.  Any investor could just buy SWC cheaper if they wanted to diversify, there was no real synergy or special advantage to SBGL buying SWC.  SBGL deserved to get knocked down significantly.  And you are very right, the analysts are just guessing mostly.  They get the same SEDAR and SEC filings we do.  And then they have even more cognitive biases than the average person."