Aquarius Platinum Limited (UK) Soars 43% On Offer From Sibanye Gold Ltd

Shares in platinum producer Aquarius Platinum (LSE: AQP) are up by as much as 43% today after it received a bid from South African gold producer Sibanye Gold (NYSE: SBGL.US). The deal values the company at $294m and represents a premium of around 60% to Aquarius Platinum’s closing share price from yesterday.

The offer is backed by Aquarius Platinum’s board, but needs to be approved by shareholders which Sibanye Gold is aiming to complete in the first quarter of 2016. It represents a further step into the platinum industry by Sibanye Gold after it previously purchased the Rustenburg operations of Anglo American.

The deal comes at a challenging time for Aquarius Platinum, with it suffering from the dual effects of a falling platinum price as well as a rising cost base. As a result, its share price had been down by as much as 56% since the turn of the year and, even if the deal does go through, investors in the company prior to March of this year would still be sitting on substantial losses.

Despite this, the outlook for the platinum industry is rather downbeat at the present time – in the near-term at least. Demand for the precious metal is waning and its growth outlook has not been aided by the emissions scandal in Volkswagen’s diesel cars, for which platinum is a key component.

And, with rising input costs, Aquarius Platinum is expected to continue to be a loss-making entity in the current year. However, this is due to be to a far lesser extent than in recent years, with a pretax loss of $3m being anticipated versus a loss of $90m last year. Therefore, on the one hand the deal could be viewed as good news for investors in Aquarius Platinum, since there is no clear catalyst to push the company’s share price considerably higher in the coming months.

However, the deal does not appear to be overly generous. For example, it values Aquarius Platinum at just 80% of its net asset value and, while its net assets may fall in future years due to write downs and further losses, the company does not suffer from the same labour challenges as a number of its rivals since its mines in South Africa and Zimbabwe mostly use machines as opposed to labour.

While Aquarius Platinum will seek an independent report as to whether the deal is good or bad for the company’s investors, much of its future potential depends on the price of platinum. If prices rise then it may not be such a good deal (and vice versa) and, since the future path of platinum prices is highly uncertain at the present time, the value of the business may not be straightforward to calculate. For many investors, though, today’s news will come as welcome relief after a troubled period for Aquarius Platinum.

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Peter Stephens owns shares of Anglo American. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.