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Sibanye Gold upbeat on high-value surface project

Neal Froneman

Neal Froneman

Photo by Duane Daws

6th August 2015

By: Martin Creamer

Creamer Media Editor

  

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JOHANNESBURG (miningweekly.com) – Gold mining company Sibanye Gold on Wednesday expressed excitement about the outcome of a feasibility study that pointed to a lucrative potential go-ahead for its huge gold tailings retreatment project on South Africa’s West Rand.

“It’s a beaut,” Sibanye CEO Neal Froneman said of the West Rand Tailings Retreatment project (WRTRP), from which low-cost gold and uranium provide a first-phase net present value of R3.2-billion at an internal rate of return of 15% and a payback of nine years.

Speaking at the half-year presentation of results attended by Creamer Media’s Mining Weekly Online, the company cocked a snook at current negative sentiment by declaring an interim dividend on the back of a strong June quarter.

Froneman insisted that “the honeymoon is not over” for the gold company in outlining the wide-ranging initiatives the JSE- and NYSE-listed Sibanye Gold is covering, which include:

• Taking more steps to counteract the threat of rising electricity prices and load-shedding by studying the feasibility of buying a coal mine to secure a supply of up to 600 MW of coal-fired electricity, owing to electricity prices from State electricity utility Eskom moving towards an unacceptable 24% of company costs by 2017. “It’s a very scary situation that we need to do something about.”;

• Continuing its negotiations with independent power producers on 150 MW of photovoltaic power capacity by 2017, also to counteract State utility Eskom’s electricity load-shedding. A power failure temporarily blacked out and disrupted proceedings at the company’s presentation of results in plush Sandton. The impact of load-shedding lost the company at least R125-million in the half-year;

• Progressing increasingly promising talks with platinum-mining companies that are selling their platinum mines;

• Dealing with the impact of inter-union rivalry in the current gold wage talks, which the company does not expect to culminate in a strike;

• Planning to institute a period in which its executives would volunteer salary sacrifices in the event of a gold strike, which the company saw as unlikely; and

• Anticipating a change in the attitude of government towards mining companies, which Froneman pleaded should not be expected to run at losses during these trying economic times of flattened commodity prices.

Half-year performance included gold production of 713 900 oz and 6%-lower all-in sustaining June-quarter cost of $1 054/oz – with considerable tailwind support from a weakening South African currency.

Operating profit doubled from R744-million in the March quarter to R1.62-billion in the June quarter, prompting the 10c-a-share dividend payout on lowered net debt and 12%-higher gold reserves of 19.9-million ounces.

Barring any unplanned disruptions, Sibanye should deliver a significantly improved second-half performance, Froneman said.

The company reported below-infrastructure project progress at both the Driefontein and Kloof gold mines.

But its most positive project comments were directed at the WRTRP, initially from two high-grade tailings dams at Driefontein and Kloof, and two at the Cooke gold mine in Randfontein.

The internal technical and financial review of WRTRP has confirmed its robust economic viability and the project will be kick-started once financing has been sorted out.

In the first 16-year phase, 1.2-million ounces of gold and 35.2-million pounds of uranium are expected to be recovered.

At steady state, the project will provide up to 128 000 oz of gold a year and three-million pounds of uranium a year.

Processing the remaining Sibanye surface resources, selling by-product sulphuric acid and possible taxation benefits relating to capital expenditure offsets at Driefontein and Kloof, conservatively delivers a net present value of between R5.5-billion and R6-billion, said Froneman, who added that the permitting process for the WRTRP had been initiated.

“We’re well advanced with different ways of financing this and we’ll present the details in the third quarter,” said Froneman on WRTRP, on which an analyst day is being scheduled.

Four fatalities marred Sibanye’s June quarter with the four people killed being David Matsie, Bonno Keiditswe, Thomas Bhekuyise Ndzimande and Vuyisile Sikoko.

The company is, however, taking the lead in lowering its fatality and injury frequency rate by 40% in the first half of the year and is working on technology to get people away from working at the rock face.

After servicing royalties, taxes, interest and the payment of the final 2014 dividend, Sibanye was cash negative for the six months to June 30, with a net cash outflow of R158-million.

Additional loan finance of R450-million was drawn down, increasing gross debt to R2.5-billion.

Net debt to earnings before interest, taxes, depreciation and amortisation remains at an “undemanding” 0.26 times.

Edited by Creamer Media Reporter

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