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.”