By Ed Stoddard
Diversified precious metals producer Sibanye-Stillwater and its CEO Neal Froneman had an eventful 2019, which included a damaging gold strike and the acquisition of Lonmin. The company also returned to profit, lifted in part by Lonmin’s former Marikana mine.
Sibanye-Stillwater (known as Sibanye), posted a profit of R432-million in 2019, a nice bounce from a loss of R2.5-billion in 2018, the company said on Wednesday, 19 February 2020. That bounce would have been higher were it not for a violent strike at its gold operations by members of the Association of Mineworkers and Construction Union (Amcu), which started in November 2018 and ended in April 2019.
Overall, the company had a solid performance over the course of an eventful year, with rising prices underpinning the swing back to profit, a trend that has been lifting overall industry earnings. The average rand gold price the company received rose 21%, which helped to offset the impact of the strike, which pushed the company’s bullion production down 21%.
Platinum group metal (PGM) prices, notably for palladium and rhodium, have been shooting the lights out on supply concerns. Both metals are key components of the emissions-capping catalysts used in petrol and hybrid engines, and tighter standards are driving demand. Sibanye is well-placed in this regard, with palladium accounting for 42% of its PGM production.
“The year in review was a tale of two halves, with the financial performance in H2 2019 in stark contrast to H1 2019, which was significantly impacted by strike action at the SA gold operations and other operational disruptions,” the company said in a statement.
One surprise was the performance of the Marikana mine, which is haunted by history. The Marikana massacre of 2012, when police shot 34 miners dead during a violent wildcat strike, was the beginning of the end of Lonmin, which Sibanye acquired in 2019 in an all-share deal. Marikana’s turnaround has been striking. One of the millstones around Lonmin’s neck, it generated over R1-billion in profit for the last six months of 2019.
“It generated a profit because we are in such a different economic environment,” Sibanye CEO Neal Froneman told Business Maverick on the sidelines of the results presentation at the JSE.
“The basket price for Marikana when we bought it has gone from R13,000 an ounce to R30,000 an ounce,” he said, referring to the price that the combined basket of PGMs, primarily platinum, palladium and rhodium, fetch per ounce. About 30% of Marikana’s production is palladium. Lonmin must be spinning in its grave – it succumbed among other things to depressed prices and was finally pronounced dead just as prices were starting to surge.
The pay-dirt can be seen in the payback. Froneman said that Marikana would repay its all-share acquisition price in a year – an astonishing return on investment.
“Marikana has one-year payback. It will pay back its purchase price of R4-billion in one year. It’s probably the best acquisition we’ve done in terms of payback period,” said Froneman. There was also a restructuring there that saw 1,142 employees retrenched, while 1,700 contractors lost their jobs – fewer cuts than were initially anticipated.
Other South African mining companies of late have been dishing out big dividends, but Sibanye is holding off for now in a bid to reduce its debt further. The company turned off its dividend pipe two years ago after it fell into a loss and in the wake of its acquisition of the Stillwater palladium mine in the US. Born in 2013 as a Gold Fields’ spin-off, Sibanye’s big sales pitch to investors was its dividend channel from mature, cash-generating gold operations.
Froneman said during his results presentation that “we are seriously committed to reestablishing our dividend”. That could potentially come in August 2020, when the company will report its interim 2020 financials. And when the dividends do start flowing again, Marikana will remarkably be one of the sources. - BM