Min­ing char­ter to re­main elu­sive in 2017?

Pos­si­ble de­merg­ers, re­struc­tur­ings and wran­gling with gov­ern­ment are all on the cards for the coun­try’s min­ing com­pa­nies.

Finweek English Edition - - THE WEEK - By David McKay

po­lit­i­cal in­trigue and cor­po­rate ma­noeu­vrings are likely to dom­i­nate South Africa’s min­ing sec­tor in 2017, with firms such as An­glo Amer­i­can, Glen­core and Gold Fields fea­tur­ing while Eskom and the elu­sive min­ing char­ter are also set to top the agenda.

Glen­core an­nounced it had come to the end of a re­struc­tur­ing in which it low­ered debt by roughly $10bn to about $16.5bn – a de­vel­op­ment that opened up the re­sump­tion of div­i­dend pay­ments start­ing with a $1bn pay­out this year.

The Switzer­land-based group also wasted no time look­ing for new as­sets. In De­cem­ber it un­veiled plans to buy a 19.5% stake in Rus­sian oil com­pany Ros­neft, as well as rais­ing the pos­si­bil­ity it could buy up shares it doesn’t al­ready own in Mu­tanda, a cop­per mine in the Demo­cratic Repub­lic of Congo.

These de­vel­op­ments alone have had an­a­lysts spec­u­lat­ing whether this sig­nals the end of the three- to four-year-long bear mar­ket in com­modi­ties, or whether it is just a mea­sure of the strength of Glen­core’s own as­set base. Re­gard­less, here are some of the other is­sues likely to fea­ture in 2017.

An­glo Amer­i­can:

2017 is a dou­bly im­por­tant year for the SA min­ing bell­wether: first, be­cause it turns 100 years old; sec­ond, the com­pany is due to hive off its coal, iron ore and man­ganese as­sets, pos­si­bly through a de­merger.

The in­vest­ment op­por­tu­nity is whether to hold on to shares in the de­merged en­tity should An­glo take this re­struc­tur­ing op­tion (in­stead of sell­ing its coal and iron ore as­sets, which might raise dif­fi­cult, head-spin­ning BEE chal­lenges).

De­merg­ers have done rel­a­tively well on the JSE. Shares in Sibanye Gold are twothirds higher since its cre­ation in 2012 while South32, built from the non-core as­sets of BHP Bil­li­ton, is 35% stronger. There’s a like­li­hood An­glo’s prog­eny might fare just as well.

The de­merger may also put a spring into An­glo’s step – al­ready the top-per­form­ing min­ing share in Lon­don last year – with an­a­lysts sug­gest­ing there could be a 20% up­lift in the stock.

Gold Fields and Sibanye Gold:

All eyes will be on Nick Hol­land, CEO of Gold Fields, in Fe­bru­ary when he un­veils new pro­duc­tion tar­gets and re­serves for the firm’s large SA as­set, South Deep, the last of the ma­jor Wit­wa­ter­srand gold ore­bod­ies.

The ex­pec­ta­tion is that pro­duc­tion could be sig­nif­i­cantly re­duced from the yearly tar­get of 650 000 to 700 000 ounces, which is cur­rently in the com­pany’s plans, while the as­set’s life of mine could also be low­ered.

While shares in Gold Fields could be knocked on this bad news, ev­i­dence of more re­al­is­tic pro­duc­tion and cost tar­gets could see the project fi­nally con­tribut­ing to Gold Fields’ bot­tom line.

Be­ware, how­ever, that a down­grade in South Deep’s pro­duc­tive power will put a new spin on Gold Fields’ some­what ag­gres­sive merger and ac­qui­si­tion strat­egy of 2016, in which it promised to spend $1.4bn over eight years at its Ghana mine, Da­mang, as well as $268m for a 50% par­tic­i­pa­tion in the Gruyere gold project in Western Aus­tralia.

A fur­ther joint $1bn bid may also be made by Gold Fields for Kirk­land Gold if that firm’s share­hold­ers re­ject its own ex­pan­sion plans. Bid­ding for Kirk­land would cap a mas­sive out­lay for Gold Fields and place pres­sure on its op­er­at­ing team to make good on its in­vest­ments.

The ef­forts of Gold Fields will be mir­rored in some way by Sibanye Gold, which is hop­ing share­hold­ers will ap­prove its R30bn bid for Still­wa­ter Min­ing Com­pany, a US pal­la­dium and plat­inum firm – a piece of cor­po­rate sor­cery that will in­volve a min­i­mum R10.3bn rights of­fer.

Neal Frone­man, Sibanye CEO, may not stop there, hav­ing tellingly re­marked that own­ing Still­wa­ter would put Sibanye in pos­ses­sion of dol­lar rev­enues that would lower the com­pany’s cost of debt – a sig­nal that the ex­pan­sion is not over (hav­ing al­ready bought Aquar­ius Plat­inum and Rusten­burg Plat­inum Mines).

Frone­man’s cor­po­rate odyssey is also partly in­formed by dis­af­fec­tion with the busi­ness cli­mate in SA min­ing. He com­mented at the end of last year that the coun­try’s min­ing sec­tor was close to break­ing point ow­ing to de­lays with the min­ing char­ter and state cap­ture.

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