Is industry prize on the table in the bullion buyer’s market?
SIBANYE Gold’s eclipsing of Gold Fields has become the stuff of legend in mining circles over the past three years.
The unbundling of Gold Fields’s labour-intensive operations had been expected to be a boon to the Nick Holland-led company, which in one deal significantly reduced its exposure to South Africa’s fractious labour relations.
Instead, Sibanye, with Neal Froneman at the helm, went on to outperform Gold Fields — which sold its unwanted assets to Sibanye— and to become a central cog in the consolidation unfolding in the industry.
The question now is whether the new player is interested in acquiring Gold Fields’s only remaining South African asset, the mechanised jewel of the gold-mining industry, South Deep.
Buying South Deep sometime in the future would depend on the price of the asset, Froneman told Business Times.
Questions that would also need answering, he said, included whether value could be delivered to stakeholders, and whether the asset could produce the necessary operational metrics.
South Deep is still a “world-class resource despite well-documented operational challenges”, Froneman said.
Since Gold Fields bought South Deep almost a decade ago, it has struggled to bring the mechanised operations of the mine up to speed. It was only during the company’s second quarter of 2015 that it could announce promising production numbers.
South Deep is still two years behind schedule.
“The massive nature of the South Deep resource lends itself to mechanised mining, which is different to Sibanye’s current operations, so operational synergies are not obvious,” said Froneman.
“There would be, however, some regional and cost synergies which could be realised between Sibanye and South Deep.”
But despite any potential synergies, Froneman said Sibanye did not “really see opportunities in South Africa at the moment for gold”.
Since its listing in 2013, Sibanye shares have gained 371%. Gold Fields has dropped 36% in the same period.
Some commentators have said that smaller, more nimble South Africabased companies such as Sibanye were best placed to buy the unprofitable assets of global mining giants.
However, with an environment that is packed with labour issues, policy uncertainties and political instability, and with global factors weighing in, Froneman said, South Africa was not conducive to long-term investment.
Hit by sluggish growth and slow demand from China, the world’s leading mining houses have disposed of operations across the globe. Anglo American intends to shrink its portfolio to just 16 assets. The bulk of the disposals will be in South Africa, and
GLOBAL AMBITION: Sibanye Gold CEO Neal Froneman aims to build his company into one of the top five in the commodities in which it operates include Kumba Iron Ore.
On the question of whether Sibanye is interested in turning around Kumba and Anglo’s coal assets, Froneman said: “At the right price and under the right conditions, we believe that value may still be extracted from some of the assets.”
Peter Major, a mining analyst at Cadiz Corporate Solutions, said he would not be surprised if Froneman bought Kumba.
“These are forced sellers and it’s always fun buying when the guys are forced sellers. If he gets a great deal, he will buy it,” he said.
Already, Froneman has bought An- glo’s Platinum Rustenburg Mines.
Froneman said unprofitable assets usually had unnecessary overhead costs and addressing that issue in order to improve operations had decreased Sibanye’s costs by 26% in the first two years of its operation.
“A key priority is capital discipline,” he said.
Froneman, who last year also purchased Aquarius Platinum, said he hoped that in a few years’ time his company would be in the top five in all the commodities in which it operates — gold, platinum, uranium, coal and base metals such as copper or iron.
It is a similar strategy to that once employed by the 99-year-old Anglo: being a top-three producer in all the metals in which it was invested.
Standing in the way of Sibanye’s goals is the Association of Mineworkers and Construction Union.
Froneman and the union’s president, Joseph Mathunjwa, have to find a way to work together.
“Our biggest challenge is balancing their social requirements and the economic reality,” Froneman said. “There’s no use making demands that cannot be met and the industry goes out of business, because it serves no purpose to the country and to the stakeholders.”
Major said Mathunjwa had met his match in Froneman and “the government needs to take care of South Africa’s remaining gold mines or else all [unprofitable] mines close. Mathunjwa knows how far he can push his luck and when to back off. They [Froneman and his team] know these assets and the country very well. [Froneman] understands how the politics works, the unions, the communities, the financiers and the mining environment.”
The asset disposals taking place across the mining industries have been singled out as an opportunity for South Africa to address past attempts at transforming the mining industry by selling equity stakes to black investors.
The Mining Charter calls for mines to be at least 26% black owned by 2014, a target that has not been met, according to the Department of Mineral Resources.
Major said BEE companies did not have the same potential as Froneman to turn around these unprofitable assets because they were geared towards short-term trading. A few of them, he said, were looking at building 30- to 40-year companies.
These are forced sellers and it’s always fun buying when the guys are forced sellers