Mining Weekly

JOHANNESBURG (miningweekly.com) - A strong call to action was made by Sibanye-Stillwater CEO Neal Froneman on Thursday for a common purpose towards zero harm in South Africa's mining industry, where rising fatality numbers are causing great concern.

Froneman said a point had been reached where management on its own could not make the difference that needed to be made.

"Unless all stakeholders step up to the plate, we're not going to make a difference to our safety," which he said at the Johannesburg- and New York-listed company's presentation of half-year operating and financial results, had reached a plateau that needed to be broken through.

"If we are at a point where people's attitudes are resulting in accidents and we can't solve that, then I'm not sure we can mine in such an environment," he said, warning that a halt to mining on the grounds of it being unsafe would have huge knock-on consequences.

"We need to get together and we need to talk about this - so a call to action for a common purpose towards zero harm," he added, which coincided with a slide flashed up on to a large screen headlined: 'Safety compact required'.

He drew attention to South Africa's improved political environment and said he was encouraged by the extent of the informal interaction between government and business to foster understanding of what is needed to deal with problem-causing issues.

"What's not visible is so positive," he said, while pledging the full support of Sibanye-Stillwater to supporting inclusive economic growth through mining, taking part in constructive engagement initiatives and creating positive momentum.

Half of the company's earnings before interest, taxation, depreciation and amortisation (Ebitda) were now arising from platinum group metals and loss-making gold operations had been closed, which was providing resilience to the current strong rand environment.

"If spot prices stay where they are, we're not going to make a lot of money out of our gold business, but we're also not going to go down the tubes," Froneman said at the results conference in which Creamer Media's Mining Weekly Online participated.

Sibanye, he said, had realised more than a R1-billion in yearly synergies since taking over Rustenburg Platinum Mines at low cost from Anglo American Platinum.

"Labour-intensive operations, if run correctly, can be highly productive and cost effective," he said while flashing a slide on to the screen showing the company's mines being positioned in the lower half of the cost curve.

The 282 631 oz of palladium and platinum produced in the US at an all-in sustaining cost (AISC) of $660/oz in the six months to December 31 sold at a basket price of just under $1 000/oz.

A record throughput of 517 000 oz recycled ounces contributed $15-million to Ebitda.

The 1 194 348 oz of PGMs produced by Sibanye's South African platinum operations in the six months exceeded guidance and the 714 300 oz of gold produced by its South African mines was 4% higher than in the first six months of 2017, despite the closure of the Cooke operation on the West Rand.

"What's remarkable is that these assets not that long ago were generating significant losses at very similar spot prices," Froneman told fund managers, analysts and journalists.

"We believe we're resilient to the current strong rand environment without any financial instruments," he added.

Sibanye calculates its AISC for it South Africa gold operations at $1 126/oz, the lowest of the South African gold mining companies.

Owing to the new tax legislation in the US, the corporate income tax rate falls to 21% in 2018 from a previous 35%.

"This rate has the effect of bringing down our deferred tax liability by $205-million," CFO Charl Keyter reported.

The company, he said, was still well within its debt covenants of 3.5 times net debt-to-Ebitda until the end of 2018 and two times thereafter.

"Where the strong rand is now, we need to make some plans and the operations are already well advanced with that. If you look the various scenarios…it will take us about four years to de-lever and we're very comfortable with the scenarios that we've planned," Keyter said.

"Primary focus is de-leveraging the balance sheet. That is certainly an over-hang in the market. We understand that, and under the strong rand environment, we need to demonstrate our ability to remain cash-flow positive under that, but also we need to highlight the large amount of cash that's being generated by our operations in the US, and our Lonmin transaction has been done in a way that doesn't consume cash. Producing cash to bring down our debt is important, and the political change being seen in South Africa is going to address our South African discount," Froneman said.

"We're not ex-growth. Pursuing value-accretive opportunities is still a focus, but it cannot be done using cash at this stage, and certainly until the value of our equity is something different, we can't use our equity either, so I suppose for the next while we'll really just hunker down and de-leverage and consolidate our business," he added.

By 15h00 on Thursday, Sibanye's share price had fallen by 11.77% to R11.92 a share.

Answers to analyst questions on the acquisition of Lonmin revealed that it is incumbent on Lonmin to reduce its employee complement, which will take place whether or not the transaction goes ahead.

"You're already seeing stability in Lonmin's operating numbers. They've got a much better handle on their working capital and our view is that by the time we get to close the transaction, they will be net cash positive. In other words, they'll be able to settle their debt and there should still be a little bit of cash," Froneman said, emphasising that Sibanye would not be in a position to ask its own shareholders to take on more debt.

Adjusted Ebitda for the South African gold operations for the year ended December 31 declined by 46% to R5.3-billion on a 7% decline in production to 1.4-million ounces and a 9% decline in the average gold price to $1 254/oz.

The South African PGM operations contributed R1.6-billion, or 18%, to group adjusted Ebitda.

Primarily due to the increase in borrowings arising from the acquisition of Stillwater, net finance expenses for the six months ended December 31 rose R963-million year-on-year to R1 312-million.

The group recorded a net profit for the six months of R370-million compared with R2 955-million for the comparable period in 2016.