Financial Mail - Investors Monthly
Mining the right metals for future sustainability
Sibanye’s strategy was simple — grow by acquisition and allow those assets to grow organically. Soon after its humble begin
nings in 2013 as an offshoot from Gold Fields, Sibanye bought the Cooke operations from Gold One International and, in 2014, the Burnstone project from Wits Gold.
In 2016 Sibanye acquired Aquarius Platinum’s stakes in the Kroondal mine and the Platinum Mile re-treatment facility, as well as Anglo American Platinum’s Rustenburg operations and the Mimosa joint venture with Impala Platinum in Zimbabwe. In 2017, it acquired the Stillwater Mining Co in the US for $2.2bn and last year Sibanye made a $500m stream financing deal with Wheaton International to shore up its balance sheet and reduce operational leverage. It also made an agreement with DRDGOLD to establish a surface mining tailings re-treatment partnership.
This year Sibanye acquired Lonmin, which includes assets such as the Marikana platinum group metals (PGMs) mining operations and associated retreatment, smelter, base metal refinery and precious metal refinery assets in SA. It also acquired metal market analytical consulting company SFA Oxford to help it better understand PGM usage in battery materials and other industrial and automotive applications.
Sibanye is a leading international precious metals mining company. It has a diverse portfolio of PGM operations in the US, SA and Zimbabwe; gold operations and projects in SA; and copper, gold and PGM exploration properties in North and South America. The focus is on how the PGMs the company produces can be optimised for continued utility into the future. Sibanye is leaning heavily on advanced battery technology and high demand for catalytic converters.
The edge that Sibanye has over its competition is that it is also a globally leading recycler and processor of spent PGM catalytic converter materials. The Stillwater operation focuses primarily on recycling and generates 56% of the total group earnings before interest, tax, depreciation and amortisation (ebitda), coming in at R1.4bn of the total R2.5bn ebitda generated for the quarter ended March 31.
Currently 84% (FY 2018) of ebitda was earned from PGM production while only 16% came from the traditional gold mining operations. Even though 69% of revenue is generated in SA (where the gold operations are) the local mining businesses only feeds through to around 50% total of ebitda.
Forty-one percent of the total precious metal production is gold from SA, while 56% of precious metal production is made of a 50/50 split between platinum and palladium — and more than half of this comes from the US. One has to wonder if CEO Neal Froneman has considered splitting out the SA assets and separately listing the international assets.
Froneman has not always been the market’s favourite. When the acquisition spree began and the share price rallied from around R12 to R72, everyone thought he was a hero. A few difficult years lay ahead and he loaded up on gearing to keep acquiring more and more assets. Of course, the share price traded from R72 down to below R8, and saw him painted as a mad man.
The recent stream finance deal and a significant rally in the palladium price (and now gold) have resulted in the share price trading up to around the R22 mark.
Froneman is once again being cast in a favourable light. IM suspects that in a few years he may well be lauded as a hero once more, given the uncertain outlook for world markets and the bullish impact that such uncertainty has on gold — coupled with the ongoing demand for platinum and palladium. We may well see Sibanye’s share price reach the lofty highs of old. ●