Sibanye-Stillwater celebrates a 5-year journey of unbelievable growth and success.
Precious metals mining giant Sibanye-Stillwater truly embodies our Elites yearbook theme: “Celebrating excellence in mining”.
In the space of just five years, since its establishment in 2013, the company has not only become a dominant force in the South African precious metals sector, initially delivering a successful turnaround strategy for its deep level gold assets and subsequently building significant momentum in consolidating the local PGM sector, but has also established a notable presence internationally.
This article first appeared in Mining Elites in Africa 2019
Sibanye-Stillwater has swiftly become one of the biggest PGM producers in the world in addition to its position as a leading gold producer.
Editor Laura Cornish sat down with CEO Neal Froneman to talk about the company’s transformational journey over the last five years.
The successes Froneman has achieved in reviving some of South Africa’s oldest gold mines and becoming a leading global PGM producer, will undoubtedly be recognised as one of the greatest accomplishments in his career.
He has built a company that will employ nearly 100 000 people post the company’s proposed acquisition of Lonmin and operates a business that has a successful track record of taking under-performing assets and turning them into profit-making operations.
It is also well understood that for every mine employee, the livelihoods of another eight to 10 people are positively impacted.
“This means the company is indirectly responsible for the well-being of about 3% of South Africa’s population. It’s a huge responsibility and shows the importance of mining and the role it plays.
"It is for this reason primarily that Sibanye-Stillwater should be nurtured by all of its stakeholders,” he highlights.
360° gold turnaround
“What many don’t know is that I identified the opportunity to revitalise the Gold Fields assets before the unbundling was announced.
"When the opportunity arose, I put my hand up to lead that unbundling and this enabled me to drive the strategy I envisaged for Sibanye-Stillwater, from the start – which was realising my vision to create a South African mining champion that is globally competitive, but remains committed to our local mining sector and grounded in South Africa.”
Taking on a collection of gold assets in South Africa, which were perceived to be high cost with a limited future, required absolute dedication, commitment and the support of a team which shared Froneman’s vision.
With these attributes in abundance, the company faced its challenges and quickly addressed them, in the process successfully turning the operations around.
“The assets are high quality, long-life mines supported by hard-working employees but system inefficiencies had crept in and costs were too high and these areas had to be addressed,” – which the company did, in just two years, delivering on its investment thesis to create superior value for all its stakeholders and to become an industry-leading dividend payer.
Achieving this was no easy task however – it entailed restructuring the business, reducing management levels and introducing more technical capacity “at the face”.
“We addressed overheads and shared services and brought in new philosophies such as improving training efficiencies, but our over-arching focus was cost reduction, because outside of production, that is really the only area a mining company can fully control,” Froneman points out.
And, having reduced costs by about 20% the gold operations began to generate significant cash flows, which enabled the company to establish itself as an industry-leading dividend payer.
Maximising on skill sets builds momentum in PGM growth strategy
On the back of a mandate from the Sibanye-Stillwater board to evaluate how the PGM sector could contribute towards growing the business, Froneman says it was a ‘no brainer’.
“We saw great scope to apply our competencies to the sector – bringing consolidation, cost reduction and experience in deep level, hard rock mining to a fragmented, maturing PGM sector which was coming out of a lengthy and intensive strike.”
The exact same scenario was in play to acquire under-performing PGM assets and breathe new life back into them and in doing so realise major synergies and cost reduction by consolidating the sector.
“We walked through the front door of every platinum company and expressed an interest. Some of them rejected us outright; others entertained discussions and through the process of engaging, and, having done desk top due diligence studies, were ultimately able to identify good targets that fitted into our PGM consolidation strategy.”
The acquisition of Aquarius Platinum and Rustenburg Platinum Mines followed quickly in 2016 and became the first steps in delivering on the company’s growth strategy – which entailed having a material position in the industry.
To become one of the largest PGM producers in South Africa, with control of the full metals value chain, Lonmin was identified as an important third step in the South African PGM growth strategy by providing Sibanye-Stillwater with PGM processing capacity and access to end users.
But various events led Sibanye-Stillwater to defer this step and instead establish itself as a truly global mining company, through a well-timed, strategic acquisition.
The Sibanye-Stillwater team’s research into the PGM market fundamentals suggested a positive outlook for the palladium price, due to persistent and potentially widening market deficits.
This spurred the company to identify and acquire the Montana, United States-based Stillwater Mining Company, late in 2017.
“We came to a quick realisation that the Stillwater assets were amongst the best on the world – not only because of their higher exposure to palladium, which we were positive about, and its low costs and high grades, but also because it is located in a great, stable jurisdiction and in addition is a leading PGM recycling business.”
Stillwater was acquired for a substantial US$2.2 billion, but at a relatively low point in the palladium price cycle.
Since the deal was announced in December 2016, the price of palladium has risen significantly, from around $750/oz to around the $1 100/oz mark, significantly enhancing the value of the assets.
“We were severely criticized at the time due to the size of this deal, which saw our share price drop significantly when announced, but I think we have since proven that a South African company can buy an American company and still create value for shareholders.
"We understood that we couldn’t use our shares as consideration for the transaction due to the relative discount we were trading at.
"So we instead consciously took on a large amount of debt, knowing the quality of the assets, and with the Blitz project due to add significant value, we were confident that we would reap the financial benefits quickly and this acquisition would be a game changer for us. Stillwater gave us our first international asset and transformed us into a truly international precious metals producer.”
Looking back on the achievements from its SA PGM business, Froneman reveals that these have exceeded his expectations by delivering synergies and savings of over R1 billion per annum within the first 14 months of acquiring the Kroondal mine and Rustenburg operations, well ahead of initial forecasts of about R800 million per annum over a three-year period.
Previously loss making operations were therefore quickly restored to profitability and have provided valuable diversification to the Group. A similar outcome is envisaged from the Lonmin assets, should the proposed deal be successfully concluded.
“We have identified about R1.5 billion of annual synergies with Lonmin, which we expect to fully realise by 2021, but there may be opportunities to improve on that much like we did at Kroondal and Rustenburg.”
While palladium is considered hot property for now, Sibanye-Stillwater remains bullish about the future of platinum in the long-term as well, expecting the current oversupply to taper off due to a lack of capital investment into the sector, and as restructuring exercises across the industry continue.
Stillwater however is and will remain the company’s crown jewel. It is one of the lowest cost producers in the world with average grades between 15 and 20 g/t, is mechanised and comprises long-life (30 – 40 year) ore bodies.
Blitz alone will produce 300 000 oz pa of 2E PGMs by 2022, taking total production to 850 000oz pa.Located in a very sensitive ecological region, the operation has the lowest emissions of any PGM operation in the world.
As part of its commitment to the environment, the company has in place a world-class agreement with its neighbours – called ‘The Good Neighbours Agreement’.
Now in its 19th year, the agreement legally commits the company to work closely with and provide full environmental disclosure to its neighbours and certain regional environmental non-governmental organisations.
Provisions of the agreement include transporting the majority of company employees to and from work in buses so as to minimise traffic on rural roads; periodic meetings among the parties to the agreement to discuss concerns and consider environmental performance, ongoing company funding of an independent engineering firm to monitor and report on the company's environmental outcomes and open community involvement in company dealings with regulatory agencies.
In excess of 50% of the mined tailings typically are returned to the mines after processing and are used as underground fill.
The remaining tailings are placed in lined tailings ponds where the constructed embankments are contemporaneously re-vegetated and contoured to match the surrounding topography.
Mine effluent water generally meets drinking water standards aside from elevated concentrations of nitrates from the explosives used underground. These nitrates are treated and removed biologically before any water is discharged.
Tailings water is recycled through lined facilities back to the concentrators and not discharged to the environment.
Regular bioassays of tailings water consistently show 100% survival of trout fingerlings. Biodiesel blends are used as fuel underground, both for their cleaner exhaust and to reduce carbon footprint.
Likewise, in an area noted for its abundance of deer, elk and bear, the Stillwater mine also hosts a large herd of bighorn sheep that winter on the mine property.
“Stillwater is the perfect example of how mining can be done across the globe. The operation works with world-class end users who value product that is responsibly sourced.”
The strategic importance of the investment into PGMS (and Stillwater) has been borne out in 2018, where over 75% of the company’s EBITDA was attributed to its PGM assets, which has helped significantly in a period where the gold assets have not performed optimally.
The overall future outlook
Despite the rapid growth into PGMs, Froneman confirms that the gold portfolio remains important to the company, whilst acknowledging that the assets are deep and have a certain risk profile.
“We need to improve our safety performance and restore the gold operations to profitability, or consider other strategic options.”
Automation and mechanisation may be longer term answers to solving safety challenges but Sibanye-Stillwater is looking more to digitalisation as a short-term step in improving safety.
It has invested in digitalisation by funding the University of Witwatersrand’s digital mine laboratory (Digimine) which is focused solely on digitalisation research that may bring a proactive approach to safety-related challenges.
Another of the company’s biggest challenges lies in addressing behavioural issues throughout the Group.
“We need our people to make decisions based on our CARES values - commitment, accountability, respect, enabling and safe production. These values need to filter into our peoples’ actions both at work and away from work, but this needs to start with leadership – not just at a company level but at a national level.”
2018 has not been kind on Sibanye-Stillwater, with a spate of tragic events leading to a sharp increase in fatalities at its South African operations.
“We take responsibility for what happens on our mines and we are urgently addressing this regression in safety. Safe production is our first, second and third priority and we are committed to restoring and improving our safety performance in future.
"The company has historically compared favourably with regard to safety statistics relative to its peers and we need to restore our industry leading safety position.”