Sibanye builds war chest against future strikes

SIBANYE HAS STRUCK AN AGREEMENT WITH CITIBANK TO DELIVER 105,906 OUNCES OF GOLD MINER A FEW WEEKS AWAY FROM APPROACHING THE COURT TO DECLARE STRIKE UNPROTECTED

Fresh from a rights placement for R1.7bn, Sibanye-Stillwater will raise a similar amount by selling future gold production to Citibank, giving it protection from a potential platinum strike as relations with a major union deteriorate.

Sibanye-Stillwater, with the equivalent of two-thirds of its R32bn market capitalisation as net debt, has said it is reinforcing its balance sheet in case of a strike at its SA platinum division, the current protracted industrial action at its local gold mines, as well as to prepare for any external events.

Sibanye’s increasingly bitter relationship with the Association of Mineworkers and Construction Union (Amcu), which is in the fifth month of a gold strike at Sibanye, could well spill over into local platinum group metals (PGM) businesses when wage talks start in June.

“We believe there is an increasing risk of a strike at Sibanye’s SA PGM operations.

“This is one of the biggest risks to the balance sheet, in our opinion,” said Nedbank analysts Leon Esterhuizen and Arnold

van Graan. “Importantly, this move will give the company a stronger footing when it heads into PGM wage talks, as the unions won’t be able to exploit a weak balance sheet position to push for higher wages,” they said.

Sibanye, the largest producer of SA gold, said on Thursday it had struck an agreement with Citibank to deliver 105,906oz, or nearly 3.3-tons of gold, during the fourth quarter of 2019 for an upfront payment of R1.75bn.

Sibanye had net debt of R21.3bn at the end of December 2018 and has extended the upper limits of its debt covenants to the end of 2019 to ensure these are in no danger of being breached because of the financial consequences of the ongoing gold strike.

Combined with the issue of shares, the forward sales would give Sibanye undrawn facilities of R10bn. “The gold pre-payment, in addition to the share placing announced earlier this week, are both strategic and pre-emptive levers to enhance our balance sheet flexibility and ensure that the group is appropriately positioned and sufficiently robust to endure any exogenous challenges,” CEO Neal Froneman said.

The price for the gold was set at between $1,200/oz and $1,323/oz. The gold price is now trading at $1,295/oz.

Sibanye is potentially a few weeks away from approaching the Labour Court to declare the strike at its gold mines which is well into its fifth month unprotected.

Amcu called 14,000 of its members, representing about half the gold division’s workforce, out on a strike on November 21 2018.

Despite numerous setbacks in the Labour Court, Amcu has remained steadfastly committed to the strike and its president, Joseph Mathunjwa, said earlier this week that the strikers will not return to work without having their demands met.

The strike knocked firstquarter gold output down to 104,000oz, about a third of the 291,500oz it produced in the same period a year earlier.

The strike has cost Sibanye about R1.5bn so far.

The inability of Amcu to force Sibanye to bend to its demands has raised the question of whether the union will be able to successfully call a strike in the platinum division if there is a similarly small gap between its demands and what the company is offering.

Amcu is demanding a R1,000 a month wage increase for its gold members, while Sibanye agreed a R700 a month increase with three other unions in November for the first two years of a three-year wage deal.

Employees will receive R825 a month extra in the third year.