Sibanye

Finweek English Edition - - INVESTMENT -

Neal Frone­man, CEO of Sibanye Gold, is still strug­gling to con­vince scep­tics who think his com­pany won’t be able to main­tain the div­i­dend pay­ments of the past 18 months. Sibanye Gold is to pay a 50c/share in­terim div­i­dend rep­re­sent­ing a 35% in­crease year on year. This is in ex­cess of its stated div­i­dend pol­icy of pay­ing out 25% to 35% of nor­malised earn­ings, a met­ric that re­moves un­usual or one-time in­flu­ences.

“We paid a div­i­dend that was in ex­cess of pol­icy be­cause we could,” said Frone­man.

Sibanye Gold’s head­line in­terim earn­ings fell 36% to R533m, partly ow­ing to a write-down on losses in Rand Re­fin­ery in which Sibanye is the sec­ond-largest share­holder, but Frone­man is ask­ing mar­ket watch­ers to be watch­ful.

“I pre­fer to look at the nor­malised earn­ings level be­cause this is where we pay div­i­dends from,” he said at the group’s in­terim re­sults pre­sen­ta­tion in Jo­han­nes­burg re­cently.

“We have read all the an­a­lysts’ re­ports,” he added.

“We note the scep­ti­cism, but hope­fully there will be recog­ni­tion that we are dead se­ri­ous about this [div­i­dend pay­ments]. We will strive to be a bench­mark div­i­dend payer in the sec­tor,” he said.

As­sum­ing a gold price of R430 000/kg (against a cur­rent price of R447 000/kg) and a rand/dol­lar ex­change rate of 10.50 (R10.66 at the time of writ­ing), Sibanye Gold cal­cu­lates it will gen­er­ate enough free cash f low un­til 2028 to af­ford the R1bn div­i­dend it paid out in its 2013 fi­nan­cial year.

The premise on which the div­i­dend is built is trans­form­ing Sibanye Gold’s pro­duc­tion pro­file from the har­vest mode adopted by the for­mer owner Gold Fields in favour of cost com­pet­i­tive­ness and, cru­cially, pro­duc­tion growth.

This is where the scep­tics come in. They con­tend Sibanye Gold’s growth h pro­file smacks of em­pire build­ing; that t new ac­qui­si­tions will be cap­i­tal hun­gry y and that re­turns to share­hold­ers will be e sac­ri­ficed.

Of course, it re­mains to be seen n whether Frone­man and his team can n de­liver, but he wants his crit­ics to ac­cept t what’s been achieved. For in­stance, he e has grown Sibanye Gold’s pro­duc­tion n in 2014 to 1.7m oz against the 1.3m oz z planned by the for­mer owner of the e gold mines, Gold Fields.

Fur­ther­more, Frone­man thinks s he can take group pro­duc­tion to 1.8m oz/year by 2028, which i s t he year when Gold Fields be­lieved its as­sets s – the Drie­fontein, Kloof f and Beatrix gold mines s – would have been n mined out.

Sibanye Gold ’s s con­cep­tual cash f low f ig­ures, af­ter cap­i­tal and tax, will be around R2bn ris­ing to R3bn by 2022 and to just un­der R5bn in 2026 – eas­ily ac­com­mo­dat­ing the R1bn div­i­dend pay­out of last year and most prob­a­bly al­low­ing for a much higher div­i­dend pay­out. In other words, Sibanye Gold thinks it can fund its project pipe­line with­out risk­ing the div­i­dend.

“We will be able to fund the ex­ist­ing div­i­dend pro­file of about R1bn through next 14 years of cash from ex­ist­ing re­serves,” said Frone­man.

At least that’s the plan. p IN RE­AL­ITY, min­ing rarely al­lows for the neat lines of con­cep­tual cash flow graphs.

“There’s still head­room be­tween the div­i­dend re­quire­ments and cash flow as­sum­ing the con­ti­nu­ity of busi­ness with­out ex­ter­nal fac­tors such as strikes, fires, dif­fi­cult busi­ness con­di­tions and so forth,” he said.

His project pipe­line may in­clude plat­inum shafts no longer wanted by An­glo Amer­i­can Plat­inum (Am­plats), or even the non­core as­sets of Lon­min and Im­pala Plat­inum (Im­plats) which could also be sold to the likes of Sibanye Gold.

“The one pub­lic seller of plat­inum as­sets [Am­plats] is go­ing to take a lot longer to sell the mines than six months,” said Frone­man re­fer­ring to the orig­i­nal sched­ule he had set down to com­plete a deal.

“But we have got five tar­gets and we’ve been through the front door of all the com­pa­nies,” he said. “We con­tinue to en­gage with them, but it would be im­proper to say who they are.”

Neal Frone­man

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