Sibanye vows to step up cash flow

Sibanye-Stillwater will put in place a structure to generate cash within the next eight weeks, to address investors’ concerns about its debt and a potential rights issue that has halved the company’s share price so far this year.

Sibanye’s net debt stands at about R23bn and analysts have flagged concern about the ratio of net debt to adjusted earnings before interest, tax, depreciation and amortisation (ebitda), which was 2.4 times at end-March.

That is below the covenant requirement of less than 3.5 times for the remainder of 2018 and 2.5 times thereafter.

Addressing this concern directly, Sibanye CEO Neal Froneman said the company would put in place a streaming deal, raising $500m, and potentially another structure worth $100m around the inventory held at its recycling business in the US.

That $600m is worth R7.64bn at the prevailing exchange rate and so amounts to about one-third of the company’s R23bn net debt and brings gearing to about 1.5 times.

The dramatic change in Sibanye’s debt level came from the $2.2bn cash purchase of the entire Stillwater palladium and platinum mining company.

Sibanye was keen to put those two structures in place to tackle its debt, but tax changes signed into law by US President Donald Trump brought negative tax consequences and the deals had to be restructured, Froneman told an analysts’ briefing.

The two deals would be in place within the next six to eight weeks, Froneman said.

The market would be “pleasantly surprised” by the nature and competitiveness of the transactions, he said.

There are minerals coming from Stillwater that receive no value, and Sibanye could look at including gold, nickel and copper by-products from the US business in a streaming deal as a source of income.

Stillwater produces between 10,000 oz and 15,000 oz of gold a year.