Sibanye Gold debt sector’s 2nd highest

IN 2013, SIBANYE Gold was marketed as the antidote to an indebted and growth-obsessed gold-mining industry. Today, borrowings are the second-highest in the sector and the company is digesting its biggest deal yet.

Sibanye, spun off from Gold Fields four years ago under mining industry veteran Neal Froneman, was supposed to be a steady, dividend-paying operator of three ageing but profitable South African gold mines.

Since then, Froneman has pursued acquisitions outside of gold, to the extent that Sibanye will produce more ounces of platinum-group metals (PGM) than bullion this year. The $2.2 billion takeover of Stillwater Mining this year has left Sibanye with net borrowings more than double its annual earnings and the company cancelled its dividend last month.

The executive who earned the nickname “Mr Fix-It” for his turnaround successes in the 1990s now needs to show he can run the new mines profitably and reduce debt.

“We’ve seen Neal the deal maker and we want to see more a Neal-of-old coming back – Neal the operator,” said Hanre Rossouw, a Cape Town-based money manager at Investec Asset Management, a top 10 investor in Sibanye according to data. “There’s not a lot of room on the balance sheet for more acquisitions, so the focus will be on delivery.”

Froneman says he’s taking advantage of rivals’ recent focus on selling assets and curtailing budgets to repay borrowings taken on during gold’s bull run that ended in 2013. The precious metal traded up 0.2 percent to $1 336.32 (R17 185.2) an ounce at 6.51am in London, bringing this year’s gain to 16 percent.

“In this last four to five years, as companies have dealt with debt and fixed up their balance sheets, they’ve forgotten about growth and the future,” Froneman said on August 30. “We’re ahead of the pack.” Sibanye’s stock has more than doubled since listing in February 2013.

“They’ve communicated the change in strategy well and have been quite savvy at buying undervalued PGM assets at the bottom of the cycle,” Rossouw said.

Froneman won plaudits in Sibanye’s early days by improving performance at the ex-Gold Fields mines. The company paid a dividend even after gold dropped 28 percent in 2013 and bigger rivals such as Barrick Gold and AngloGold Ashanti cut or cancelled theirs.

But with production from the three old mines scheduled to halve by the late 2020s, the chief executive decided he couldn’t stand still.

In 2015, Sibanye agreed to buy Aquarius Platinum and made a deal for some ageing, high-cost platinum mines from Anglo American Platinum. A year later, the Stillwater acquisition was announced. – Bloomberg