2015 will be recognised as the year Sibanye Gold (Sibanye) started its period of transition from a major gold producer to a diverse, multi-commodity mining company – predominantly in South Africa.
Written by Laura Cornish.
Two massive platinum acquisitions, followed by a deal which sees Sibanye enter the coal sector, could just be the start for opportunity-seeking CEO Neal Froneman, who says there is no limit to growing the company’s portfolio, across any commodity.
“Everything Sibanye does is premised on our goal to create superior value for all our stakeholders (predominantly shareholders, employees and communities) and to be an industry leading dividend payer in the mining sector by ensuring we have substantial free cash flow, on a sustainable basis,” Froneman starts.
Many would agree that the company has to date been successful in achieving this, but the CEO has intentions to substantially expand upon its achievements.
“We have now established a solid gold business and believe that diversification into other commodities will in due course enhance our dividend thesis. Because of the synergies between hard rock, deep level gold mines and platinum mines, our entrance into this sector was a natural extension into a relatively low-risk, portfolio expanding starting point.”
It appears that this is just the start for Sibanye however, as Froneman reveals the company’s “overarching” goal is to fill the void left by companies leaving South Africa, across all major commodities including iron ore and copper. This momentum could carry into 2016 if the right opportunity arises. “Within the next few years the company will comprise numerous commodity portfolios,” he confirms.
The CEO in fact believes that Sibanye will emerge as South Africa’s dominant mining champion if it continues on its evolutionary growth journey into new commodities, while recognising the country’s challenges such as regulatory uncertainty, under-serviced communities, etc.
“If we become big enough, we may have some influential involvement in the direction of the country. Mining is after all one of South Africa’s more significant economic contributors which will require substantial leadership to restore the prominence of the industry. Leadership doesn’t seem to be coming from government or the unions so it is going to be up to the industry to set the leadership direction.”
The platinum strategy
In early September Sibanye revealed its R4.5 billion acquisition of Anglo American Platinum’s Rustenburg Operations which include the Bathopele, Siphumelele and Thembelani mines as well as the integrated Khomani and Khuseleka mining operations, two concentrating plants, an on-site chrome recovery plant as well as the Western Limb Tailings Retreatment plant and associated surface infrastructure and related assets.
A month later the company announced its intention to acquire all of the shares in Aquarius Platinum (whose footprint extends into Zimbabwe). Although this deal still requires Aquarius shareholder support, both companies’ boards have given their approval. It is expected to be finalised in the first quarter of 2016.
“It took at least two years to restructure our gold business and we expect a longer duration period (of about three to four years) considering this is an entrance into an entirely new sector.”
The combined PGM production from all the assets will immediately position Sibanye within the top four largest PGM producers in South Africa, even if the company does nothing further with the assets other than maintain steady production targets. “It remains however the ideal starting point to build a significant platinum company,” Froneman notes.
“We believe we can make a difference to these mines, especially the Rustenburg operations. We have entered into these acquisitions with our eyes wide open and understand the challenges that lie ahead, but we embrace these challenges. We also believe that the platinum industry is at a point where the gold industry was 20 years ago – highly fragmented. We are ready to introduce our gold culture into this new business portfolio,” Froneman reveals.
Having developed a good ability to manage medium and deep level, tabular, hard rock, labour-intensive mines, platinum has always been the obvious expansion choice. “The core competencies required to deliver profitable gold mines extend into platinum although I must point out that the Anglo Platinum mines are already break-even, at current prices.”
Sibanye has negotiated an “attractive” arrangement with Anglo American Platinum which provides a degree of sharing in the upside or downside depending on profitability.
Sibanye’s outlook on the platinum sector is positive. The company expects an improvement in market fundamentals in the next two or three years, especially as surface stockpiles deplete. Demand for catalytic convertors is expected to rise in line with projected increases in automobile sales in both North America and Europe.