Froneman wants to be new SA’s mine champion
’Mr Fixit’ hopes to repeat gold success in platinum
NEAL Froneman, who earned the reputation of “Mr Fixit” back when he teamed up with Bernard Swanepoel at Harmony Gold, this week secured a foothold in platinum that will start him off in fifth place in terms of platinum producers in the world.
But not for long, say analysts, who believe Froneman will quickly move into the top three — specifically in the Rustenburg area.
Froneman recently lived up to his “Mr Fixit” reputation when he took over four of South Africa’s oldest gold mines, slashed costs by more than 20% (excluding the rand impact) in two years, and started paying out large dividends to investors. He believes he can do the same in platinum. “We have a track record that we can apply,” said Froneman.
But it will not be easy to “fix” the old Rustenburg operations that have for the most part been cash-negative, if one excludes revenues from tailings operations. Froneman will fork out between R4.5-billion and a maximum of R20-billion for the Anglo American Platinum (Amplats) Rustenburg operation that was recently restructured from five to three mining shafts.
Froneman said he could produce between 500 000oz and 800 000oz of platinum from these mines and cut costs by about 10%. Most of the restructuring in terms of job cuts has already been done by Amplats.
The platinum price is at sixyear lows of less than $1 000/oz, prices last seen at the end of 2008 when the world economy collapsed. Froneman said he expected current headwinds to continue, but believed that Sibanye picked up the Rustenburg operation (valued at R7.7billion at the end of June) at a good point in the cycle, even though the deal was not done on a net value basis.
“In the medium to long term we are bullish on the platinum price, otherwise we would not have done this deal,” he said.
Sibanye will spend about R1.2billion to R1.4-billion a year in capital on the Rustenburg operation. Amplats CEO Chris Griffith said: “In the hands of Sibanye, the Rustenburg mines will get the capital that they need. And [they] will be longterm assets.”
Froneman said that as in the gold industry, consolidation was “absolutely necessary” in platinum.
In terms of the sales agreement, Amplats will continue to treat the platinum concentrate produced by Sibanye for at least the next eight years. Amplats will also market the platinum produced by Sibanye for the next three years.
It is well known that Froneman has been looking for a good buy in platinum for more than a year now.
“We have looked at many options and we were quite structured and disciplined in our approach,” said Froneman.
“This is our first entry into platinum and we want it to be meaningful. We are happy with the size of Rustenburg, in that it’s big enough, but not that big that one would choke with your first bite,” he said.
An easy target for further platinum acquisitions would be Lonmin’s mines. Lonmin’s en- tire market capitalisation at R3.1-billion is a fifth of Sibanye’s market cap of about R17-billion and much less than what Froneman will pay for the Amplats operation — making this a bargain buy to some.
But Froneman told Business Times he was not interested in buying Lonmin.
“They are losing money every day and even though they might be cheap, I do not think they are worth buying currently.”
The acquisition of the Rustenburg operation essentially doubles the size of Sibanye. Froneman said there was no reason it should not double the market capitalisation of the company — which would drop the “Gold” from its name, “Sibanye Gold”, in due course.
Investors in both companies loved the transaction, with share prices shooting up more than 5% in Sibanye to R18.50 a share. The price was slightly up at Amplats, too, at around R32 a share.
On the possibility of another acquisition, Froneman said he would look at what would bring him the best value.
“It can be more platinum . . . or gold, depending on which one would give us the best value and economic returns. We are also a very energy-intensive company and we have been seriously looking into entering the coalmining space,” he said.
Sibanye also produces uranium, used in nuclear power generation, as a by-product of some of its gold mines.
Froneman said he had been looking around for good coal opportunities.
“We are considering all the different options. We have been looking at a mix of mines, some provide an IPP [independent power producer] opportunity, and then there are those that can supply Eskom, and certain mines with export opportunities,” he said.
Anglo American, which owns 77% of Amplats, has previously considered the sale of three coal mines supplying Eskom, including the Kriel, New Denmark and New Vaal mines.
“As Sibanye, we have been speaking to the ruling party and have been received positively. We have put up our hand and said we want to be the new South Africa’s mining champion,” said Froneman, who now owns assets in the two most labour-intensive mining sectors in the country.
Griffith believes Froneman, and Sibanye as a company, is a good buyer for the assets because the company “knows the South African landscape and how to operate within it”.
But Froneman will have to wait another 12 to 18 months for approvals from the Competition Commission and the Department of Mineral Resources, among others, before he can officially put on his hard hat and be hands-on at the Rustenburg operation.