Global ratings agency S&P Global has revised the outlook for precious metals miner Sibanye-Stillwater to positive from stable and affirmed its ‘BB-’ long-term rating, as the miner continues to benefit from “extremely strong” platinum group metals (PGMs) basket prices, with close to nil net leverage.
At the same time, the agency raised its South Africa national scale rating on the company to ‘zaAA+’, from ‘zaAA’.
S&P said on May 31 that it “strongly believes” internally generated cash flow and the enhanced clarity in the company’s capital allocation framework would improve the miner’s flexibility to pursue mergers and acquisitions (M&As) without compromising its recent deleveraging.
This positive outlook reflects that S&P could potentially raise the rating again within the next 24 months, should more certainty on Sibanye’s business and capital structure evolution follow any potential M&As.
The agency forecasts leverage remaining substantially below 1.0x under most precious metal pricing scenarios and it expects Sibanye to deliver solid earnings before interest, taxes, depreciation and amortisation (Ebitda) of between R65-billion and R85-billion.
This should result in debt to Ebitda close to nil, in the absence of M&A or ad hoc returns to shareholders, S&P said, adding that Sibanye has built a robust liquidity position, having more than R25-billion of available cash and full availability of its R5.5-billion revolving credit facility at the end of April.
The company's remaining maturities include its 2022 and 2025 notes, and its $600-million revolving credit facility, which is due for extension in 2023.
Strong operating cash flows can support a variety of capital allocation priorities, including approved long-term capital projects, debt management initiatives and shareholder returns in the form of special dividends or share buybacks.
“We think PGM prices could remain elevated but realised rand pricing could be partly offset by lower dollar exchange rates. The strong pricing environment seen in 2021 to date is likely to persist, owing to supply-and-demand deficits expected for palladium and rhodium over the next three to five years, before substitution to platinum takes effect,” S&P said, referring to the elevated PGM basket prices.
It added that demand is being driven by tightening emissions control regulations in the automotive sector, resulting in increased PGM loading requirements in catalytic converters, while supply is tempered by years of underinvestment in South African PGMs mining.