JOHANNESBURG (miningweekly.com) – Mining analysts last week raised local platinum and gold expansion opportunities for cash-flush precious metals mining company Sibanye-Stillwater, but Neal Froneman, the CEO of the superbly performing Johannesburg- and New York-listed company, expressed concern that South Africa’s current government environment is not conducive to investment.

The two projects raised by the analysts were the company’s K4 platinum group metals (PGMs) opportunity at Sibanye’s Marikana complex in North West province, and the company’s developmental-stage Burnstone gold mine and processing operation, located in the Witwatersrand sasin’s South Rand goldfield, next to the town of Balfour in Mpumalanga, 75 km east of Johannesburg. (Also listen to attached Creamer Media audio recording.)

Of the K4 PGMs opportunity, Froneman said during question time after last week’s presentation of Sibanye’s stellar half-year results: “It’s a great project and it’s the one I really hope our Minister and Cabinet give us the excuse to develop because it deserves to be developed. It’s just one of these really good job-creation opportunities that are squandered by a lack of leadership in South Africa.” Froneman has been vociferous about South Africa’s current political environment not being conducive to investment and the reason for the undervaluation of Sibanye’s share price.

In the six months to June 30, Sibanye generated free cash generation of R10.9-billion, record normalised earnings of R8.8-billion and an interim dividend of R1.3-billion. It has also invested R1.6-billion in Covid-19 social relief efforts and knocked its debt back to pre-platinum strategy levels.

K4 is a large, long-life, high-grade Merensky and upper group two (UG2) proposition, which was abandoned owing to the financial stress of the previous owner, Lonmin.

As was stated by Mining Weekly in April 2017, that if the K4 shaft were taken out of care and maintenance and ramped up, it would be the lowest-cost PGMs operation on the western limb of the Bushveld Complex, because it would co-extract both Merensky and UG2 reefs simultaneously. UG2 reefs within South Africa’s Bushveld Complex offer close to 90% of all the world’s rhodium, which is in very short supply and very high demand. UG2 is also palladium heavy and palladium continues to have strapping fundamentals. Rhodium’s 21% half-year contribution to Sibanye’s half-year revenue matched that of Sibanye’s gold mines, which produced 12 554 kg at a time of the gold price exceeding R1-million per kilogram.

On the Burnstone gold opportunity, Froneman commented: “There is potential for Burnstone in the current gold price environment. We have been in the process of dusting off the study of the strategy for Burnstone. However, I want to say that we would need to think very carefully about investing more money in South Africa at this point in time. The climate is not conducive to investment and I’ve told the Minister there are many, many projects that companies have in their bottom drawers, that they would be so happy to invest in if the right things were done.

“All stakeholders need to take note that this is not a patriotic thing. You’re called unpatriotic when you won’t do it. You’re only dumb if you do it under conditions like this. Government and other stakeholders need to nurture business and recognise business.

“It’s highly unlikely that any other stakeholder can develop these type of projects. The sooner there’s a recognition to embrace business, create an investor friendly environment and nurture business, the sooner these projects will happen. But I cannot see shareholders allowing us to use their money to invest under these conditions,” Froneman emphasised.

As of December 2019, Burnstone contained surface and underground gold mineral reserves of 1.95-million ounces and mineral resources of 10.98-million ounces.

Burnstone assets were formerly operated as a mine, until they were placed on care and maintenance in mid-2012. They comprise two established shaft complexes, a 125 000-t-a-month carbon-in-leach gold processing plant, tailings storage and related surface infrastructure and mining rights. Prior to 2012, Burnstone produced 38 000 oz of gold and holds a mining right for the period from February 16, 2009, to February 16, 2027, covering a total area of 13 135 ha.

Burnstone’s feasibility study was approved by Sibanye in 2015 after the assets were acquired by Wits Gold in 2014. Site work was started in 2017 and access development stopped in May 2018 owing to company cash requirements when the focus shifted to establishing underground engineering infrastructure in preparation for mining production in 2021.

MINDFUL OF THE MARKET

On K4 being brought on stream, Froneman said that Sibanye would also have to be mindful of how receptive the market would be to more PGMs in general.

“We have made some commitments to the Competition Commission and we’ll obviously honour those, but it’s a project that does deserve to be developed. It’s just one of these really good job-creation opportunities that are squandered by a lack of leadership in South Africa and this view that some stakeholders have that they just press a button and money’s created. I really do hope that these answers find their way into the media of what is such a bad situation in South Africa at the moment,” Froneman commented.

The acquisition of Burnstone for a mere R70-million, gave the then gold-focused Sibanye a presence across the entire Witswatersrand basin.

Gold has since become relatively small and contributed only 10% of group adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda). In spite of Covid, there was a 17% year-on-year increase in production, but against a period of strike disruption in 2019.

The half-year focus was on high-grade panels and will get back to more normal grade levels. Sibanye’s gold business could have a 50% increase in the second-half output. The reserves for South African gold operations are based on R600 000/kg and the current spot price is more than R1-million a kilogram.

“There is significant upside in the second quarter. Our planning parameters are conservative and it does open up the opportunity to scale-up our gold business, and we would do that, although we would prefer to rather retain the margin than increase output. We’ll look at that. I think the point is that our current gold business is being well managed at a certain level and even if we were to stretch it a bit more, it’s still only going to be 15% of revenue in the future,” he said in response to analyst questioning.

MECHANISING MARIKANA LIKE RUSTENBURG

In response to Mining Weekly on steps being taken to mechanise Marikana in the same way as Rustenburg and Kroondal are mechanised, Froneman said: “We would like to mechanise as much as we can. Certainly, where we have the right orebody profiles, we have mechanised very successfully. A substantial part of our business is mechanised. The US operations are basically totally mechanised and large parts of Rustenburg, being Bathopele, are also mechanised. However, it becomes very difficult to mechanise orebodies that are narrow and tabular and that remains a challenge. But in principle, whatever we can mechanise we will, and we are constantly trialling new low low-profile equipment to try and achieve that.”

Along with significantly higher precious metal prices received for the period, the operational results added higher production to achieve the 718%-higher half-year Ebitda of R16.5-billion.

Attributable profit of R9.3-billion compared with a R255-million loss in the half-year of 2019.

Sharp debt reduction was accompanied by the resumption of cash dividends of 50c a share.

The impact of Covid-19 extended beyond its operations, with the economic and social devastation wrought requiring an intensified focus on the social element of the environmental, social and governance, or ESG, strategy.

The continued improvement in the group safety performance and the substantial financial and social assistance provided to employees and their communities has complemented the operating and financial performance delivered during the period.

More than R1.5-billion was committed in financial support to employees not at work during the period and more than R100-million was committed to community and government support.

Safe production milestones included the group’s first fatality-free quarter since the last quarter of 2018.

Sibanye’s gold operations achieved a deep-level hard-rock safe production milestone of 12.4-million fatality-free shifts.

The US PGM operations reported two element (2E) PGMs production of 297 740 2Eoz, which was 5% higher than for the corresponding period of last year. South African PGMs contributed 54% of group adjusted Ebitda.

PGMs production from the South Africa’s PGM operations increased by 5% year-on-year to 657 828 4Eoz, with the inclusion of the Marikana operations for the full six-month period offsetting lost Covid-related production.

The all-in sustaining cost of R19 277/4Eoz ($1 156/4Eoz) was 46% higher year-on-year, mainly as a result of significantly lower second-quarter Covid-disrupted production and the inclusion of higher-cost Marikana production.