Sibanye-Stillwater Lonmin
Sibanye-Stillwater CEO, Neal Froneman

Q1, 2019 was an important period for Sibanye-Gold, with the Sibanye Group successfully navigating complex operational and financial challenges.

In addition it achieved significant milestones which have positioned it to sustainably benefit from higher prevailing precious metal prices and to better withstand any challenges that may occur during the year.

The notable improvement in safety during H2 2018 was maintained in Q1 2019, with the Sibanye Group achieving improvements in most safety measures across the operations and achieving a record seven million fatality free shifts on 7 March 2019.

This was sadly curtailed by a fatal fall of ground incident at the South African PGM operations on 20 March 2019.

The South African gold operations recorded a second successive quarter without any fatalities and continued to improve on other safety measures.

Safe production continues to be the highest priority across the
Sibanye Group and we remain focused on maintaining and improving on our safe production performance at all of our operations.

The Association of Mineworkers and Construction Union (AMCU) strike which began at the South African gold operations on 21 November 2018 continued throughout Q1, 2019, concluding after almost five months on 17 April 2019.

The operational and financial impact of this extended strike at the South African gold operations, was mitigated by another solid operational performance from the South African PGM operations enhanced by significantly higher palladium and rhodium prices, which, combined with a 17% depreciation in the average rand:dollar exchange rate, boosted earnings and cash flow from both the South African and United States PGM operations.

A slower than anticipated start to the year at the United States PGM underground operations and temporary flexibility constraints resulted in lower than anticipated mined underground production which resulted in elevated unit costs for this reporting period.

The commissioning of the second electric furnace (EF2), enabled an increase in recycling processing volumes and a reduction in metal inventory, resulting in higher sales volumes.

Average unit commodity prices were higher across the Sibanye Group operations for Q1 2019 relative to Q1 2018.

The 27% increase in the average 2E PGM basket price to US$1,305/oz in Q1 2019, resulted in adjusted EBITDA from the United States PGM operations increasing by 33% to US$105 million.

In rand terms, this amounted to R1,466 million, a 56% year-on-year increase.

The gearing of the SA PGM operations to the higher rand PGM basket price was similarly evident, with the 33% higher average 4E basket price of R17,104/oz significantly boosting earnings and cash flow.

Reported adjusted EBITDA of R353 million from the SA PGM operations was 38% higher than for Q1 2018.

This result was achieved despite the change in the contractual processing arrangement with Anglo American Platinum from a Purchase of Concentrate (PoC) to Toll processing arrangement (discussed in more detail in the operations section below).

From an accounting perspective this contractual change resulted in zero revenue recognition of 4E production from the Rustenburg operations.

Cash flow due to the contractual change was not affected and on a normalised basis, the pro-forma adjusted EBITDA (including Rustenburg), would have been R1,108 million (US$79 million), which is a 330% increase relative to Q1 2018.

Attributable adjusted EBITDA from Mimosa, of approximately R198 million (US$14 million) generated during Q1, 2019 is equity accounted and also excluded from Group adjusted EBITDA.

The combined adjusted EBITDA from the PGM operations (US and SA) of R1,819 million (US$130 million) for Q1, 2019, more than offset the R1,661 million adjusted EBITDA loss from the SA gold operations due to the strike action, resulting in Group adjusted EBITDA of R176 million for Q1 2019.

Including the deferred adjusted EBITDA from the Rustenburg operations, normalised adjusted EBITDA from the combined PGM operations would have been 131% higher at R2,574 million (US$184 million) with normalised Group adjusted EBITDA higher at R931 million (US$66 million).

We remain focused on deleveraging the Group balance sheet with net debt to adjusted EBITDA at the end of Q1 2019 of 3.00x, was below the Group’s 3.5x covenant ceiling for 2019.

Following the 5% share placing of approximately R1,700 million (US$120 million) and gold prepayment (announced on 10 and 11 April 2019) of approximately R1,750 million (US$125 million), pro-forma net debt to adjusted EBITDA would be approximately 2.54x.

Whilst the strike action and the gradual build-up post the strike will continue to negatively impact the South African gold operations during Q2 2019, unit revenues for both the gold and PGM operations are expected to exceed those in the comparative period in 2018 and further deleveraging is anticipated during the course of the year.

Salient features for the quarter ended 31 March 2019

  • Maintained solid H2 2018 safety performance – numerous historic safety milestones achieved
  • The transition to a Toll processing arrangement at Rustenburg adds both strategic and commercial value – direct access to end users and margin enhancing relative to the PoC arrangement
  • The improved financial performance from the combined PGM operations more than offset strike related losses at SA gold operations − Adjusted EBITDA of R1,819 million (excl. Rustenburg) from the combined PGM operations resulted in positive Group adjusted EBITDA of R176 million − Including Rustenburg, pro-forma adjusted EBITDA from the combined PGM operations would have been R2,574 million
  • Strike at SA gold operations brought to a successful conclusion post quarter end
  • Section 189 restructuring process at SA gold operations well advance and expected conclusion by mid May 2019
  • Five-year wage agreement reached for the Stillwater mine and Columbus metallurgical complex post quarter end
  • Strategic balance sheet management through equity placing and gold prepayment − Appropriately positioned with R10 billion available facilities and reduced leverage − Net debt: adjusted EBITDA at 3.0x at 31 March 2019- reduced to 2.54x on a pro-forma basis (excl. Rustenburg)