Gold maverick Sibanye’s star fades
Rocketing costs, power crisis shave 18.5% off share as wage talks loom
IT was not a good week to own a gold mine in South Africa. Even Sibanye Gold — seen as a beacon of hope in the country’s gold mining industry — took a hammering.
Its share price lost 18.5% this week, wiping out R4.76-billion of its value, after it delivered worse-than-expected results. Since it was spun off from Gold Fields and listed in 2013, Sibanye has delivered profits in a harsh environment.
In March this year, Sibanye’s share price had climbed 122% since its listing, while Gold Fields was down 44%. But even with investors’ negative reaction this week, Sibanye is still outperforming Gold Fields.
This week, Gold Fields was down 52% since Sibanye was hived off, while Sibanye’s share price was up 69.2% since listing.
Gold Fields, which has only the South Deep mine left in South Africa, also tumbled this week after it said production had fallen by 10%.
The 13% slide in its share price on Thursday to a close of R44.28 wiped out R5.2-billion in a day. On Friday it closed at R43.86.
Sibanye CEO Neal Froneman has been praised for sweating its old gold mines in South Africa, but even he could not bring a shine to the latest quarter as profit slumped to R774-million from R1.74-billion in the same period a year ago.
Production dropped by 5% and costs were up by nearly R100 000 per kilogram.
“The perceived cash cows have been milked as much as they can be milked,” said Froneman. “There is just no more flexibility left for the industry.”
Sibanye literally had to put out fires at its Kloof mine during the past month, and the operation also struggled with conveyor belt problems.
But the biggest problems faced by gold mining, and mining in general, in South Africa are Eskom’s inability to supply power, increasing electricity tariffs, the never-ending struggles with labour fighting for more money without higher production and an uncertain regulatory environment.
The power cuts have already racked up a bill of R80-million for Sibanye.
It is now looking to bring 150 megawatts of solar onboard by 2017 and between 200MW and 600MW through independent coal power producers in about five years.
“In the short term, all we can really do is manage the power outages,” said Froneman.
Sibanye still hopes to meet its full-year production target of more than 1.6 million ounces. But the biggest risk to achieving that lies in the wage talks coming up next month.
“There is really no way that we can predict what will happen next month with the negotiations,” Froneman said.
“But I am sure we could reach our planned production targets, except if there is a protracted strike.”
It was time for a social contract to be formed between business, labour and government, he said.
“It is important that we make sure that the industry is sustainable.
“Without a sustainable industry, jobs will be lost.”
On the market’s reaction to Sibanye’s results, Froneman said that after eight quarters of delivering on or above its forecast, it had partly expressed disappointment.
“But given the price declines of our peers in the industry this week, I feel that it is not Sibanye-specific and may indicate greater investor uncertainty about issues I highlighted earlier, including wages, Eskom and political and regulatory uncertainty,” he said.
Nevertheless, Froneman believed it was only a temporary setback and that Sibanye’s operations were back on track after a difficult first quarter.