Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Shares of Sibanye Gold Crash After Company Finalizes $1 Billion Rights Issue

What happened

Shares of South African gold miner Sibanye Gold (NYSE: SBGL  ) are down 32% as of 10:45 a.m. EDT today. The catastrophic stock price drop came after the company announced it had finalized the terms of its underwritten renounceable rights offer of $1 billion.

So what

Whenever a company issues additional shares, the market typically responds with a stock price drop. A 32% drop, though, is a bit extreme. When you look at the terms of the rights offer Sibanye just issued, though, this stock price drop seems very much justified.

Open pit gold mine

Image source: Getty Images.

According to Sibanye, the subscription price for shares in this rights offering was 11.28 South African rand, or $0.82 per share based on the exchange rate at the time of the announcement. That price is equivalent to a whopping 60% discount to the closing price on May 17. 

The reason for the rights offer was that Sibanye needed to raise cash to help pay down a $2.65 billion loan it took to pay for the acquisition of U.S. platinum and palladium miner Stillwater Mining last year. It's hard to imagine many other situations where a company would go ahead with a financial move that would dilute shareholder value so drastically.

Now what

Even before this rights offering, Sibanye Gold wasn't exactly the first name on anyone's buy list for gold miners. With declining production and all-in sustaining costs of $1,163 per ounce, Sibanye is a marginal cost supplier that is barely making modest profits at today's prices. Furthermore, the operating profit margins for its new platinum and palladium mining operations are a modest 8% as well.

For investors looking to invest in gold, Sibanye probably isn't the best bet today, and the pricing of that rights offer supports that idea.

10 stocks we like better than Sibanye Gold Limited ADR
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Sibanye Gold Limited ADR wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of May 1, 2017

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 4020280, ~/Articles/ArticleHandler.aspx, 5/26/2017 5:28:25 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 8 hours ago Sponsored by:
Change up DOW 21083.0 70.5 0.3%
Change up S&P 500 2415.1 10.7 0.4%
Change up NASD 6205.3 42.2 0.7%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

5/25/2017 4:02 PM
SBGL $5.68 Down -0.18 -3.07%
Sibanye Gold Limit… CAPS Rating: **