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.
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.
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.