Glit­ter­ing bot­tom line and a hunt for as­sets

Financial Mail - Investors Monthly - - Analysis -

This com­pany anal­y­sis comes with a warn­ing. The writer pos­sesses, for the most part, a re­verse Mi­das touch when it comes to in­vest­ing — so much so that col­leagues have re­ferred to a HRI (Hasen­fuss Re­verse Index, patent pend­ing) as a con­tra-in­di­ca­tor for com­mod­ity share in­vest­ment.

That said, it is dif­fi­cult not to be im­pressed by the dogged de­ter­mi­na­tion of Sibanye Gold’s CEO Neal Frone­man in build­ing a di­ver­si­fied min­ing house.

One can be sure that once Frone­man as­sem­bles the broader com­mod­ity port­fo­lio, the en­larged en­tity will op­er­ate sans the usual old-style min­ing house frills and will not have a soft cor­po­rate un­der­belly. Fun­da­men­tally, though, it is dif­fi­cult to back Sibanye. The trail­ing earn­ings mul­ti­ple is rich, and even the com­mit­ment to pay div­i­dends won’t of­fer too much com­pen­sa­tion for the de­mand­ing share price. As a stand­alone gold pro­ducer, the in­crease in the bul­lion price should al­low Sibanye to pump R5bn-R6bn in ad­di­tional rev­enue in fi­nan­cial 2016.

Frone­man has also forecast gold pro­duc­tion for the fi­nan­cial year ahead to in­crease to around 50,000 kg, while the wan­ing of the rand/dol­lar ex­change rate means costs in dol­lar terms will be markedly lower. Us­ing an av­er­age ex­change rate of R15/$ for the fi­nan­cial year ahead, he pen­cils in an “all-in cost” of R440,000/kg.

In short, the weaker rand and the re­cov­ery in the bul­lion price means the gold price in rand is roughly R100,000/kg higher than it was in 2015. If the gold price holds at cur­rent lev­els for most of the new fi­nan­cial year, Sibanye’s to­tal cash cost mar­gin will fat­ten to 38% and the all-in sus­tain­ing cost to 25%.

But a glit­ter­ing bot­tom line (and a gen­er­ous div­i­dend) is not the sole rea­son to con­sider buy­ing Sibanye. The big ques­tion is how smartly Frone­man can line up deals to di­ver­sify Sibanye’s com­mod­ity bas­ket. While there has been a mini-spike in re­source sen­ti­ment in the past two months, there are still plenty of well-priced op­por­tu­ni­ties for Frone­man to con­sider.

Frone­man wrote in the com­pany’s re­port for the year to end De­cem­ber 2015 that it was pleas­ing to note the over­whelm­ing sup­port from share­hold­ers for the pro­posed ac­qui­si­tions of the Rusten­burg op­er­a­tions from An­glo Amer­i­can Plat­inum and Aquar­ius Plat­inum at the re­spec­tive general meet­ings held in Jan­uary this year. One senses that Frone­man has carte blanche to scour the com­mod­ity waste­land for op­por­tu­ni­ties he be­lieves could yield com­pelling long-term value.

It is well known that Sibanye is also hunt­ing for coal as­sets, de­spite walk­ing away from talks with trou­bled Water­berg Coal.

The big share­hold­ers at Sibanye in­clude the Bank of New York, the Gov­ern­ment Em­ploy­ees Pen­sion Fund and Al­lan Gray. It also in­cludes Ti­tan Nom­i­nees, which is the cor­po­rate moniker of re­tail ty­coon and se­rial risk taker Christo Wiese, who pre­vi­ously

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.