Sibanye seeks to improve efficiency, revive old mines

SITTING in his office in the heart of SA’s gold-rich Witwatersrand, Neal Froneman keeps a constant eye on his cellphone, waiting for any update on the latest strike to afflict the mining sector. As CEO of Sibanye Gold, the country’s largest and newest gold producer with about 35,000 employees, he has good reason to be concerned.

The industry has been on the wane for years as mines have become deeper and more technically challenging to operate, with SA’s production tumbling from a peak of about 1,000 tonnes in 1970 to 167 tonnes last year — its lowest level since 1905.

Sibanye was formed when Gold Fields, undergoing a restructuring, off-loaded old South African assets that were seen as a drag on its overall portfolio.

From its inception, Sibanye has been streamlining operations to improve efficiency, with a focus on becoming a cash-generative “yield play” as it attempts to stabilise annual production at about 1.2-million ounces for 10 years.

It has shed 2,700 jobs and there are plans to cut another 1,600, reducing the cost of mining a tonne of ore by 10%.

In its first six months, Sibanye generated about R2bn in cash.

“These are mature shafts. They are still technically challenging, but look at some of the underlying numbers, a 74-million ounce resource.

“You can have the yield and, with a little bit of investment and lowering of costs, you can extend the life of these mines 20, 30 years probably,” he says.

Sibanye still has to convince investors. Its shares are still trading below its listing price, but Mr Froneman argues the company is undervalued by about 50% because of its lack of a record.

“You only can pay dividends once every six months at best,” he says. “So you probably need 18 months, two years to establish the profile of the business and establish market credibility.”

The company made its first acquisition last month as it took control of Gold One’s Cooke operations, amid predictions that Sibanye will drive consolidation in the sector. Mr Froneman believes there will be further regional consolidation, with two or three companies focused on South African gold production.

“But listen … Sibanye is not going to become a dustbin for everybody’s noncore assets,” he says. Sibanye could also look at assets in other sectors that are “value accretive” and “close to our core business”, such as uranium and platinum.

Mr Froneman says mining companies need to take a tougher stance with unions and the government when economics demand restructuring — a politically charged issue in a country blighted by high unemployment.

“We’re not going to be messed around by constraints in organised labour and government policies that don’t work. We need to stop kowtowing to government.”