While 2021 is looking like a solid year for precious metals miner Sibanye-Stillwater, executive director and CEO Neal Froneman has emphasised that the company will continue to increase its geographical diversity through value-accretive merger and acquisition (M&A) transactions.
He noted during a virtual World Gold Forum fireside chat on April 13 that M&As “will [, however,] not take precedence” above the company’s commitment to continue distributing “industry leading” dividends, which reached R730-million in 2020 as the miner generated R1.2-billion of free cash flow.
This year, Sibanye is targeting a 4% or 5% yield, with earnings before interest, taxes, depreciation and amortisation expected to be “significantly higher”.
With essentially no operational issues within Sibanye, which rerated significantly in 2020 but nonetheless remains undervalued, Froneman said the company would continue to deliver to its shareholders through dividends, as well as through achieving operational excellence.
He expected Sibanye’s rerating to continue in 2021.
At the moment, commodity prices continue “leading the way” and are increasing faster than Sibanye’s share price.
The current 4E basket (platinum, palladium, rhodium and gold) price is hovering at about R60 000, marking a 50% increase on the prices seen in the second half of 2020, and is 60% higher than the total average for 2020.
This, Froneman said, is evidence of the industry’s progress, as the basket price was about R12 000 for a 4E basket when Sibanye acquired its platinum group metals (PGMs) assets. This means that current basket prices are about 500% higher than when the miner made its initial investments a few years ago.
He warned, however, that this good growth did not mean that the miner, or industry, could be “complacent”.
Turning towards the miner’s focus on another metal, gold, Froneman is confident that the planned economic stimulus and liquidity injection plans in South Africa’s financial markets will result in a “significantly higher gold price in a few years’ time”.
It is for this reason that the miner intends to increase its gold portfolio, which currently accounts for about 20% of its earnings.
However, this will only be beneficial to Sibanye’s overall growth and success if this growth in the gold portfolio equals its growth in geographical diversity, according to Froneman, who added that “there’s no point in buying gold operational assets that have a predominance in South Africa or even Africa” as the miner intends to improve on its geographical diversity.
An important aspect to keep in mind is that of the change in investor sentiments, with Froneman saying the miner would “not buy anything if it’s not value-accretive” nor would it make the purchase if it did not improve Sibanye’s dividends.
Another space Sibanye has explored is that of battery metals, with the miner’s recent investment into European lithium project, Keliber.
In a quote from the miner’s website, Froneman said the investment is “in line with [Sibanye’s] strategic objective of entering the battery metals industry, where lithium is viewed as one of the core metals to benefit from the significant growth forecast for the electric vehicle (EV) sector”.
Sibanye’s investment into Keliber represents a strategic partnership of complementary skills, capabilities and a shared vision to be a preferred provider of responsibly sourced battery-grade materials for the market, he added, noting that the investment offers the opportunity to further geographic diversification in an attractive mining destination and “the opportunity to forge long-term partnerships with established lithium industry players that have a shared vision of supplying the EV supply chain”.
During the virtual fireside chat, Froneman explained that this investment strategy builds on the miner’s knowledge of the PGMs sector, and that it would see the company identify the metals it wanted exposure to (such as lithium and nickel), an area which Sibanye was actively looking at targets.
Froneman also said that much of the energy supply to these types of operations was in the form of hydro power, which meant a low environmental footprint in an area where the Finnish government, for example, has already stated their intention to become the battery centre of Europe.
“Keliber is a small project but is in a very prospective area. Having the relationship with the Finnish mining group and their relationship with the government was a very important aspect in ensuring that we have the right partners, that we were in the right position and close to the market,” he explained, noting that Sibanye intended to use its expertise in the downstream side of the PGMs sector to target the same end-users, like original-equipment manufacturers (OEMs).
According to Froneman, Sibanye would “like exposure to the supply chain” but emphasised that the miner does not want to build batteries.
“We’ve found that our ability to engage with end-users, like OEMs in the automobile space, has allowed us to progress the substitution of palladium with platinum, which we believe is important in bringing the industry into balance. We will follow through with rhodium,” he concluded, adding that Sibanye wants exposure to the supply chain so that the miner “can influence it”.