Gold miners ‘should unite to stay relevant’
• Sibanye CEO wants to consolidate with Gold Fields and AngloGold Ashanti in national interest
SA’s top gold miners should consolidate and create a world champion gold business or risk being bought by foreign entities, Sibanye-Stillwater CEO Neal Froneman says.
“I think there are three high quality SA companies that should be put together,” Froneman told Business Day, referring to his company, Gold Fields and AngloGold Ashanti.
That he said would be “in the national interest” and would make a lot of commercial sense.
“Egos have to be put aside and we’ve got to do what’s right in the national interest otherwise these SA companies will not feature in the future. They will be consumed by other companies.”
The combined company, with the majority of its assets outside SA, would thrust it into contention at the top of the global gold production rankings and make it the undisputed African gold champion.
Sibanye is also the world ’ s largest primary producer of platinum group metals.
Analysts agree Froneman’s fears are fully justified and that now AngloGold has completely disengaged from gold mining in SA it has become a relatively cheap and attractive target, especially for aggressive growth companies Newmont Goldcorp in the US and Canada’s Barrick Gold, the world’s two largest gold miners.
The speculation about AngloGold becoming a takeover target, especially since it disposed of all its deep- and ultra-deep level gold mines in SA, has been about for some years.
Acting CEO Christine Ramon declined to comment on Froneman’s suggestion. “Last week we outlined our growth plan to unlock value from our global portfolio of gold assets. We are focused on delivering on this strategy, which we believe will deliver the most value for our shareholders.”
Gold Fields created Sibanye in 2013 when it unbundled and separately listed three deeplevel mines in SA, leaving it with South Deep as its only operation in the country.
“Our standard line on this stuff when people ask would you do this or that or would you look on this company is that we don’t comment on this kind of
speculation. Companies are entitled to say what they want to say and equally we’re entitled not to comment on speculation,” Gold Fields CEO Nick Holland told Business Day.
Based on 2020 production, which was disrupted by the Covid-19 pandemic, particularly in SA, Peru and Argentina, the combined output of the three SA-listed firms would create a world-champion gold producer.
AngloGold is world number three producer, with 3.05million ounces — or 2.81-million ounces excluding SA — Gold Fields is sixth with 2.24-million ounces and Sibanye has 810,000oz, the most exposed to SA of the three companies, with all its gold coming from SA.
Combined output of the three companies put them ahead of world number one Newmont, which had 5.9-million ounces.
“Gold is still important for Sibanye. It’s currently too small a part of our business. It’s only 19% of revenue and it’s got to be a lot bigger,” Froneman said, adding Sibanye has a well stated strategy of intending to add offshore gold assets to its portfolio.
Analysts said the only real targets that met this strategy, and which were affordable, were the JSE-listed gold firms with their large offshore mining portfolios.
However, investors would not just look at production numbers but at the cost of producing the gold, the geographical risk profile of each company, the leadership, the resources and reserves of each company and future growth projects.
Combined, the three companies would have an average all-in sustaining cost of $1,147/oz, which would still be higher than Newmont’s $1,045/oz and Barrick ’ s remarkably low $967/oz.
The average all-in sustaining cost of $977/oz from Gold Fields and AngloGold’s $1,059/oz would offset the relatively high $1,406/oz average all-in sustaining cost at Sibanye, with analysts noting this had to be one of the drivers of Froneman’s stated intentions.
For Sibanye to persuade AngloGold or Gold Fields investors that a merger with its SA gold base based on deeplevel, labour-intensive mines would be difficult, said an analyst who declined to be named for company policy reasons.
“AngloGold and Gold Fields have spent a decade and more diversifying overseas into quality assets and extricating themselves from SA. Would investors in those two companies want to be lumped with mines in SA again? I strongly doubt it.”
Coupled with regulatory uncertainty in SA, the erratic and expensive nature of its state-monopolised electricity supply and economic difficulties, it would be a tough sell to make Sibanye one of the three potentially consolidated companies.
A more logical transaction would be between AngloGold and Gold Fields, which would leapfrog the combined entity into world number two spot ahead of Barrick, which is headed by the abrasive SA-born Mark Bristow, and its 4.76-million ounces of production by half a million ounces.
Shareholders in AngloGold, which lost CEO Kelvin Dushnisky, a Canadian, and chair Sipho Pityana just months apart last year, would most likely welcome the merger with Gold Fields and secure the services of its incoming CEO Chris Griffith, a tough SA mining veteran who had more than two decades of experience in Anglo American and successfully heading its iron ore and platinum group metals (PGM) subsidiaries.
Another complication in the three-way tie up would be the PGM mine-to-market business Sibanye owns in SA, Zimbabwe and the US, making it difficult for gold investors to compare to international pure-play gold miners, said the analyst.
There will be corporate action with the SA gold miners one way or the other, said Froneman. “There’s absolutely no doubt in my mind that consolidation is necessary. It is going to happen. You’re either going to be consolidated or you can drive consolidation. You have to become relevant.”
With a market capitalisation of about $14bn, Sibanye was too small in the global market.
“We have to be at $20bn plus to be relevant. Of course, we can get there by sitting on our hands and let the earnings of this company flow through. But we’re not a management team to sit on our hands,” Froneman said.
By comparison, AngloGold’s market cap of $8.6bn was 61% that of Sibanye and Gold Fields was 56% at $7.9bn.