Neal Frone­man on his plans to take over the world, one mine at a time

Neal Frone­man has come a long way since start­ing as a ju­nior engi­neer in the Libanon gold mine in the 1980s. It was the cre­ation of Sibanye Gold in 2012 that holds the key to his grow­ing stature as a big-time mine czar. Gi­uli­etta Talevi spoke to him

Financial Mail - Investors Monthly - - Front Page - Neal Frone­man CEO: Sibanye Gold

Q The two lat­est deals you’ve done — buy­ing Aquarius Plat­inum and Am­plats’ Rusten­burg mines — is this the cul­mi­na­tion of your plat­inum am­bi­tions or the start? A I think it’s a re­ally good be­gin­ning. There’s more to do but we have made ma­te­rial steps into the plat­inum sec­tor.

We were a lit­tle con­cerned that the mar­ket was go­ing to change, so it was im­por­tant to get th­ese deals done. We’ll ap­ply the same dis­ci­pline: be pru­dent in any fur­ther steps we might make. But if we make no fur­ther steps, this is still a de­cent po­si­tion. QWhat

do you mean about be­ing con­cerned the mar­ket was go­ing to change? A We felt there was cer­tainly the po­ten­tial of some fur­ther down­side, but [that] we were very close to the bot­tom, if not at the bot­tom, and there­fore it was im­por­tant to com­plete th­ese two trans­ac­tions, or get agree­ment, and I think we’ve been proved right. The plat­inum group met­als [PGM] prices have moved, sen­ti­ment has def­i­nitely changed and I think our tim­ing couldn’t have been bet­ter. Of course we’re also acutely aware that a turn doesn’t mean there will be a rapid in­crease in price in the short term. It could take an­other six to 18 months to see a sus­tain­able in­crease in PGM prices. QWhat

about the VW fall­out? Could this have a long-term ef­fect on plat­inum de­mand? A It’s a storm in a teacup from a plat­inum de­mand point of view. If any­thing, it’s go­ing to have the op­po­site ef­fect to what seems ob­vi­ous. Be­cause [VW] have been “thrift­ing”, in all like­li­hood it’s go­ing to lead to an in­crease in de­mand as they have to now cor­rect the thrift­ing ...

The sug­ges­tion that the diesel en­gine is now some­thing of the past is lu­di­crous. Has it af­fected per­cep­tion of diesel en­gines? Ab­so­lutely. But are peo­ple go­ing to rush out and sell their diesel en­gine cars? No. Are peo­ple go­ing to stop buy­ing diesel en­gine cars? No. So, I think we’ve seen a knee-jerk re­ac­tion and logic will pre­vail be­cause there’s noth­ing wrong with diesel en­gines. QDo

you think the plat­inum industry be­came too frag­mented? A Un­til re­cently, there’s been no neg­a­tive con­se­quence of be­ing a frag­mented industry. But as an industry ma­tures, in­ef­fi­cien­cies creep into a busi­ness, and the gold industry went through the same process. At one time there were over 40 listed gold com­pa­nies. Right now there are four or five. To sur­vive, as you be­come more ma­ture, con­sol­i­da­tion is nec­es­sary. QThe

two deals you’ve struck will ce­ment Sibanye’s po­si­tion. But is there a point at which you find your­self fi­nan­cially stretched? A We def­i­nitely have the back­ing. And we are acutely aware of us­ing too much debt. But I think it’s im­por­tant to note that any ac­qui­si­tions would [have to] have pos­i­tive cash flow as­so­ci­ated with them. You can ex­tend debt with­out nec­es­sar­ily in­creas­ing your net debt-to-Ebitda ra­tio, which is an im­por­tant fac­tor. Again, we don’t look at the en­tire sec­tor and say it’s our job to con­sol­i­date. There are some very log­i­cal, value-ac­cre­tive op­por­tu­ni­ties re­lated to the as­sets we’ve bought that I think will flow through. Q Will back­ing come from share­hold­ers or lenders? A Both. We’ve got very sup­port­ive debt fun­ders in the form of banks ... We also have strong sup­port from some of our share­hold­ers, par­tic­u­larly the Chi­nese. QWho

are your Chi­nese in­vestors? A Baiyin Non­fer­rous Group holds all the in­vest­ments in Sibanye through Gold One. It’s a con­sor­tium of CITIC (China’s big­gest con­glom­er­ate) and the China De­vel­op­ment Bank. QOne

of the rea­sons you bought Kloof, Drie­fontein and Beatrix mines to cre­ate Sibanye was to give those as­sets fo­cused at­ten­tion. Given all this em­pire build­ing, do you not risk ne­glect­ing those as­sets? A Noth­ing has changed from a strate­gic point of view. The gold busi­ness is in a steady state. Our strat­egy of cre­at­ing more sus­tain­abil­ity from a div­i­dend per­spec­tive has re­sulted in the ac­qui­si­tion of the plat­inum as­sets. This is not so much about us go­ing into plat­inum or diver­si­fy­ing, it’s about ac­quir­ing as­sets that un­der slightly dif­fer­ent

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