SIBANYE GOLD GETS READY FOR A SHOPPING SPREE
Neal Froneman, the bullnecked, no-nonsense leader of Siba nye Gold, has attracted his fair share of criticism over the years. His credo is something akin to “don’t die wondering”, and he won’t. Dealmaking in Aflease Gold, Uranium One and Gold One International – companies he previously managed – returned mixed results, hence the widely differing perspectives of Froneman’s career. Investing with him is, to resurrect the cliché, a roller-coaster ride.
So it’s no great surprise to see that in just over two years into the job at Sibanye – surely his biggest assignment yet – Froneman has been an active commentator, if not player, in the merger and acquisition (M& A) of South Africa’s precious metal assets.
In August 2013, he issued 17% of Sibanye’s shares, equal to R1.2bn, for the Cooke 1 to 4 underground gold shafts on the West Rand, as well as a large parcel of gold dumps containing gold that is now mineable given today’s technological advances in extraction. A few months later, in December, he bought the distressed gold exploration company Witwatersrand Gold for R400m, while in November he’d already been involved in a minerals swap with neighbour, Harmony Gold.
While not exactly modest in terms of M& A activity, Froneman is about to return to the deal-making market with more gusto, especially as the deterioration in SA’s mining sector is so chronic that M& A is becoming a business necessity. Sibanye is coming to the party; we just need to see who it chooses to take with.
The expectation is that one partner will be Harmony Gold which, at about R5bn, is closing in on mid-cap status after being SA’s largest gold producer less than a decade ago. Froneman has spoken of gold sector consolidation where the business motivation is corporate costs. Most of the mining costs have already been taken out by existing owners, he argues. Buying a company, however, removes the duplication in managerial staff, office costs and the like.
It’s also increasingly likely Sibanye will close a deal for the Rustenburg assets of Anglo American Platinum after acknowledging at his group’s interim results presentation earlier this month that market conditions in the platinum group metals industry had made for more “realistic sellers”. For its part, Amplats has suggested it won’t seek to bleed the last dollar for its assets.
On top of that, there are a number of organic growth prospects including t he so- called West Rand Tailings Retreatment Plant ( WRTRP), which are the ‘ dumps’ bought with the 2013 Cooke acquisition.
According to Froneman, Sibanye will produce 1.2m ounces of gold after mining a maximum of 30% of the resources at the dumps, as well as 35m pounds of uranium oxide. Based on internal company assessments, the project will have a net asset value of up to R3.6bn in its first phase.
Froneman won’t, however, disclose t he capital t hat’s required for t he project. “I don’t want to create a capital overhang,” he told analysts, referring to the likelihood of company valuations being depressed by the debt or equity