Sibanye pulls plug on mines
• Miner will spend R900m in laying off 7,000 workers
Sibanye-Stillwater will spend up to R900m laying off nearly 7,000 employees and contractors at two heavily unprofitable operations, shutting the Cooke mines entirely and putting Beatrix West on stringent operating conditions that could have it closed on short notice.
Sibanye-Stillwater will spend up to R900m laying off nearly 7,000 employees and contractors at two heavily unprofitable operations, shutting the Cooke mines entirely and putting Beatrix West on stringent operating conditions that could have it closed on short notice.
While there had been unofficial expressions of interest from third parties who might want to buy the Cooke mines, there was nothing Sibanye was willing to talk about. It first wanted to complete the section 189 process of laying off employees at its loss-making mines so as not to overlap and confuse the issue, said spokesman James Wellsted.
Analysts have roundly criticised the inclusion in Sibanye’s gold division of the Cooke underground mines. It came as part of a purchase of the Cooke assets from Gold One, the prime focus of the deal being the vast tailings dumps containing 7-million ounces of gold and 100-million pounds of uranium.
“This acquisition never made any sense in our view — unless you were a staunch uranium bull,” Nedbank mining analysts Leon Esterhuizen and Arnold Van Graan said. “Sibanye pushed it through — at a cost of 17% of the company’s market cap at the time — on the back of the acquisition being ‘strategic’ and particularly so when viewed from a uranium potential perspective.
“Well, that potential never featured and Sibanye is now closing the last remnants of this operation down; while the strategic West Rand Tailings Retreatment Project has also been pushed to the back burner,” the analysts said.
Shareholders applauded the decision, sending the shares in the R41bn company up 3.7%, to R18.98. The four Cooke shafts have been problematic and a drag on Sibanye’s average gold production costs and grades despite its best efforts. It shut the Cooke Four shaft in mid-2016. The shaft employed 1,700 miners and 800 contractors. The Cooke shafts remained dogged by illegal mining supported by its own employees.
The shafts all-in costs of operations were R646,035/kg against a received gold price of R542,407/kg in the September quarter. The short-life Cooke mines made a loss of R600m in 2016 and Sibanye deferred R400m of capital at its new Burnstone mine in Mpumalanga. In considering both assets, Sibanye opted for the new, long-life mine.
The Beatrix West mine, which was also engaged in a restructuring process, had a equally high cost, but an agreement with labour has kept the mine open. However, it will operate on a tight leash, facing immediate closure if it makes a loss. The agreement saved 1,640 jobs at the mine.
“The decision to restructure was not taken lightly, but it is pleasing to note that we have managed to ameliorate job losses,” said Sibanye CE Neal Froneman.
Sibanye-Stillwater has finally cut its losses at the Cooke mines near Johannesburg at the expense of thousands of jobs for its employees and contractors.
The effect on those losing their jobs is devastating, particularly at year’s end when nobody is really hiring.
These are not decisions taken lightly, but the argument for closing the remaining three Cooke shafts is incontrovertible.
The shafts were deep in the red, running at an unsustainable loss for a long period, a difficulty compounded by hundreds of illegal miners who invaded the underground workings.
Sibanye CE Neal Froneman has been clear that the target of the Cooke assets was not the underground mine but the surface infrastructure of enormous tailings dumps bearing gold and uranium and the uranium plant at the fourth mothballed Cooke shaft.
While Sibanye might not have been able to make the four shafts profitable under the tough and veteran leadership of Froneman, there might be another party out there t hat could — a company a lot smaller than Sibanye.
Sibanye’s focus is elsewhere, bringing its $2.2bn Stillwater Mining cash purchase in the US to account in a rising palladium price environment, stripping costs out of its South African platinum assets, and its Burnstone mine in Mpumalanga, which is essentially a new mine with a long life.
Hopefully there’s a credible operator to step in, buy the Cooke mines and save some jobs. Sibanye is cautious when looking for a new buyer. The new party, if there is one, would have to show some serious credentials to take these unloved assets from the company.
Emira Property Fund may have finally found a way to generate some competitive returns, having struggled to boost its dividends.
The group has struggled in recent years because of some tired office assets that had notable vacancies. The diversified group surprised the market this week when it said it would invest in the US, making it the first South African real estate investment trust to buy property directly in the world’s largest and most sophisticated real estate market.
The investment in grocery-anchored convenience centres will earn Emira’s stakeholders US dollar-denominated doubledigit returns of about 10.5% per annum, compared with singlefigure yields achievable in SA.
This could prompt more South African real estate companies to make plays in the US if they can find similarly strong deals. Emira has been trying to expand more of its operations offshore, having had a stake in Growthpoint Australia for a few years. The US investment strategy will mean that Emira’s income generated from offshore sources will grow from 6% to 8% with the potential to expand to at least 10%.
The first two centres that Emira will invest in are in Ohio and Texas. The deal will be in partnership with Rainier Companies, a Dallas-based investment and real estate business. Emira’s CEO, Geoff Jennett, wants to be prudent with respect to the company’s US investment strategy, so the company is investing a modest R290m initially, which is only about 2% of its assets.
“We can comfortably fund this from our own balance sheet and furthermore we can take advantage of access to relatively cheap, in-country, long-term debt finance,” Jennett says.