JPMorgan Chase dumps Sibanye shares

Sibanye-Stillwater announced today that JPMorgan Chase & Co. significantly decreased its stake in the miner.

Earlier this year, on 14 February 2024, JPMorgan Chase increased its stake in the company to 5.64%.

However, in a SENS announcement released today, Sibanye revealed that JPMorgan Chase decreased its stake in the company to 3.78% of the miner’s total issued shares.

This comes after Sibanye released its results for the 2023 financial year on 5 March. Sibanye reported a R37.9 billion loss after taking an impairment against its US palladium mine.

The miner’s Stillwater palladium project accounted for 82% of its total R47.4 billion in impairments.

Sibanye joined its South African rivals – Amplats and Implats – in announcing a dramatic slump in earnings as the prices of platinum, palladium, and rhodium declined sharply last year. 

However, unlike its peers, Sibanye is also exposed to metals used in batteries for electric vehicles and said there’s been a “structural change” in the fundamentals of the nickel market.

Sibanye said it has identified cost-cutting measures that will save about R7.1 billion in the current financial year.

Last year, the miner said it was consulting with labour unions over operating changes that could impact about 7,000 jobs at its platinum and gold mines.

“We have already taken proactive steps to address loss-making production at unprofitable operations, and the group remains focused on ensuring the sustainability of our business and delivering on our strategical essentials through this period of low commodity prices,” Sibanye said.

March has seen the company’s share price tank, and it is currently trading at just above R19 – the lowest price the miner has ever seen – and a market cap of R54.32 billion.

However, as the company’s share price dropped, Sibanye CEO Neal Froneman saved millions of rands following his exercise of put options for R96.38 million.

The company revealed this in a SENS announcement on 7 March 2024, showing that Froneman exercised a put option on 1.45 million shares. 

A put option is a contract giving the option buyer the right, but not the obligation, to sell a specified amount of shares at a predetermined price within a specified time frame. 

The predetermined price at which the buyer of the put option can sell the underlying security is called the strike price. 

On 5 March 2024, Froneman exercised his put option with a value of R96.38 million at a strike price of R66.24. 

Sibanye explained in the announcement that Froneman entered into an equity funding arrangement with a financial institution on 4 March 2022. 

This arrangement comprised a loan agreement securitised by a simultaneous collar hedge and equity lending transaction.

Simply put, Froneman borrowed money from a financial institution with a special agreement in place. This agreement involves two parts –

  • Protection from stock price changes: The financial institution is protected against the stock price changing through a collar hedge strategy. It involves the sale of “out-of-the-money” call options. The proceeds of these sales are then used to buy “out-of-the-money” put options, thereby creating a virtually cost-free hedge. This strategy provides the investor with a cost-free hedge, ensuring the value of his position (collateral) remains relatively fixed.
  • Froneman used his shares as collateral: The institution could take ownership of some of Froneman’s company shares if he didn’t repay the loan (equity lending transaction).

Froneman’s collar hedge paid off, and in exercising his put options, he was able to protect his shareholding value, thereby keeping his loan collateral in place with the financial institution. 

In other words, the CEO effectively protected his wealth while the company’s share price tanked.