Sibanye goes for more than gold

Finweek English Edition - - IN THE NEWS -

The pro­posed R4.5bn takeover of An­glo Amer­i­can Plat­inum’s (Am­plats’s) Rusten­burg mines by Sibanye Gold means that the gold pro­ducer is ac­tu­ally trans­form­ing into a mul­ti­com­mod­ity min­ing house.

In ad­di­tion to the 800 000 ounces of plat­inum group met­als (PGMs) that come with Rusten­burg, Sibanye Gold is also con­sid­er­ing the pros and cons of buy­ing its own coal in or­der to sat­isfy its energy re­quire­ments.

Add that to the ura­nium by-prod­uct from its 1.2m ounces a year of gold pro­duc­tion and you’ll quickly see why it has fallen far from the Gold Fields tree, from which it was un­bun­dled in 2012.

Neal Frone­man, CEO of Sibanye Gold, ex­plained to Fin­week that the in­ten­tion was al­ways to di­ver­sify but not in or­der to cre­ate a min­ing house of old. “It was not a strat­egy to di­ver­sify by com­mod­ity, but about be­com­ing a sus­tain­able bench­mark div­i­dend payer. What we are do­ing is tak­ing the shack­les off gold.”

That’s an im­plicit ad­mis­sion that the gold busi­ness can­not, on its own, com­fort­ably drive the R1bn-a-year div­i­dend pre­dic­tion to 2028 it made in Au­gust last year. Al­ready, there are doubts that a div­i­dend of that size will be paid in the cur­rent fi­nan­cial year.

Frone­man said t here had to be con­sol­i­da­tion in the plat­inum sec­tor, as there has to be sim­i­lar ac­tiv­ity in the gold in­dus­try, but it’s not clear how Sibanye will em­bark upon this.

It didn’t opt for Am­plats’s Union sec­tion, which was also for sale, as the com­pany wanted to make a bite-size ac­qui­si­tion be­fore mov­ing on to other tar­gets. Yet Frone­man seemed a bit sniffy with the sug­ges­tion of a Lon­min takeover.

“Some­thing like Lon­min is cheap at the mo­ment, but it’s like con­sid­er­ing a bid for Har­mony,” he said. “These com­pa­nies are los­ing a lot of money It’s hard to find a com­pany on the JSE that bus­ies it­self solely with the task of dis­cov­er­ing gold; Go­liath Gold is one, but there aren’t many oth­ers – a trend that is mir­rored through­out the world. The rea­sons for this are ob­vi­ous – the slump in the gold price since 2013 – but the im­pli­ca­tions are sur­pris­ing, ac­cord­ing to a re­port by Stan­dard Bank Group Se­cu­ri­ties an­a­lyst, Adrian Ham­mond. He cal­cu­lates that gold ex­plo­ration spend will de­cline to about R4bn this year from some R10bn in 2010.

Per­haps more alarm­ingly, the suc­cess rate in find­ing new sources of gold has slumped spec­tac­u­larly – from 200m ounces in 2005 to 10m ounces in 2010.

This means gold min­ers’ abil­ity to main­tain pro­duc­tion will be com­pro­mised, since lev­els of out­put have to be un­der­pinned by a cer­tain amount of avail­able re­serves and re­sources.

Stan­dard Bank es­ti­mates that for ev­ery mil­lion ounces of steady-state pro­duc­tion, some 23m ounces of re­serves and 46m ounces of re­sources are re­quired – the lat­ter roughly de­fined as gold, which pro­duc­ers have less eco­nomic cer­tainty about. Since 2012, the re­serves of the top 15 gold min­ing com­pa­nies have de­clined by about a fifth.

This num­ber-crunch­ing sug­gests and buy­ing them doesn’t work with­out syn­er­gies. They need a lot of cap­i­tal, they have got heavy debt and then you’d prob­a­bly have to pay a pre­mium for con­trol of the com­pa­nies.”

Yet plat­inum con­sol­i­da­tion does seem to be the plan.

“As much as we be­lieve there is con­sol­i­da­tion nec­es­sary in the gold sec­tor, it re­ally is a view based on en­hance­ments from ra­tio­nal­is­ing in­fra­struc­ture and we have a sim­i­lar view on plat­inum,” he said in a media call fol­low­ing an­nounce­ment of the Rusten­burg bid. “We did not an­tic­i­pate Rusten­burg be­ing only one step.

“I wouldn’t l i ke to c reate t he im­pres­sion that there will be [many] more steps, but we are cer­tainly open­minded re­gard­ing fur­ther con­sol­i­da­tion in ef­fi­ciency en­hance­ment,” he said. the world’s gold in­dus­try will reach a state of ‘peak gold’ by 2020, a mile­stone mo­ment that marks the de­cline in global an­nual gold pro­duc­tion. Pre­sum­ably, this will be when gold prices start to rise and, usu­ally be­fore that, the eq­ui­ties that are in­volved in pro­duc­ing it.

“We be­lieve gold pro­duc­tion could peak within the next five years if gold prices do not in­crease ma­te­ri­ally,” said Ham­mond.

“At spot gold prices, we think that 2020 could be the year for peak gold pro­duc­tion, or what could be the ‘fifth pro­duc­tion cy­cle’ dat­ing back to the last 120 years,” he said.

ed­i­to­rial@fin­week.co.za

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