Still­wa­ter pal­la­dium feast no sil­ver bul­let

Thorny US ac­qui­si­tion may not solve miner’s plat­inum famine


SIBANYE’S ac­qui­si­tion of pal­la­dium mine Still­wa­ter may be the min­ing house’s sav­ing grace as its plat­inum as­sets in South Africa re­main un­der pres­sure.

Sibanye CEO Neal Frone­man said on Mon­day that he would have to shut down some of the un­prof­itable Rusten­burg mines should low plat­inum group me­tals prices per­sist.

He said pro­duc­tion would be cut at the Rusten­burg mines by be­tween 200 000 and 300 000 plat­inum ounces, equiv­a­lent to two or three shafts, which will be placed on care and main­te­nance by Septem­ber or Oc­to­ber.

The Rusten­burg mines em­ploy about 15 000 work­ers.

Plat­inum prices have only in­creased by 5.3% this year while sis­ter metal pal­la­dium has ral­lied by 23.2%.

This makes the Still­wa­ter deal — which some in­vestors had reser­va­tions about given that the price was equiv­a­lent to Sibanye’s mar­ket cap­i­tal­i­sa­tion — well placed for at least the next two years to help cre­ate a buf­fer for Sibanye’s South African plat­inum as­sets.

Frone­man, who de­fended the price of the deal, said Still­wa­ter was highly re­garded by the mar­ket at the time be­cause of the rallying pal­la­dium price and be­cause the mar­ket was start­ing to recog­nise the turn­around that had taken place at Still­wa­ter.

“The tim­ing of a trans­ac­tion is not al­ways within your con­trol, it is an ex­tended process.

“We en­gaged with Still­wa­ter for nearly a year — but if there are favourable things hap­pen­ing in a com­pany, such as a good op­er­a­tional per­for­mance or turn­around, it will be­gin to re­flect in the mar­ket price and it will be­come un­af­ford­able,” Frone­man said.

The US-based pal­la­dium mine is go­ing through a ma­jor turn­around and pro­duces about 550 000 ounces of PGM a year. Based on the new de­vel­op­ments at the mine — which will come into ef­fect next year — it is pro­jected to pro­duce be­tween 270 000 and 330 000 ounces ex­tra by 2021.

The mine pro­duces 78% pal­la­dium and 22% plat­inum.

There has been a drop in 2017 pal­la­dium pro­duc­tion sup­ply to 6.6 mil­lion ounces, due to lower Rus­sian and North Amer­i­can vol­umes, ac­cord­ing to a re­cent re­port from John­son Matthey.

The com­pany ex­pects net pal­la­dium de­mand to climb by 7% to 7.4 mil­lion ounces this year. Plat­inum, which is also in a deficit, is bat­tling with an over­sup­ply in stock due to the above­ground stock­pile.

An an­a­lyst, who did not want to be named, said Sibanye was vul­ner­a­ble to the rand and the gold and plat­inum prices, but with Still­wa­ter in­cor­po­rated there was an evenly split pres­sure from the three vari­ables, be­cause Still­wa­ter was largely a pal­la­dium mine and also a dol­lar-based as­set.

“In a weaker rand en­vi­ron­ment Sibanye would have done very well — but it’s less geared to that now; if the rand weak­ened, it [Still­wa­ter] would be­come less com­pet­i­tive rel­a­tive to the South African plat­inum as­sets,” he said.

He added that Still­wa­ter would at­tract more gains at the mo­ment — given rand strength and a bet­ter-placed pal­la­dium price in com­par­i­son with the plat­inum price.

René Carlo Hochre­iter, an an­a­lyst at Noah Cap­i­tal Mar­kets, said the Rusten­burg op­er­a­tions were high-cost mines.

Meren­sky reef, which had the good ore grades, was de­pleted, and the mines were left with the only UG2 reef, so it was not eco­nom­i­cally vi­able at the mo­ment to mine some of the op­er­a­tions.

The rand has strength­ened 6.7% so far this year and Hochre­iter said it would have to be around R14 at cur­rent PGM prices for the op­er­a­tions to con­tinue with pro­duc­tion.

He added that it was hard to keep all par­ties happy in this en­vi­ron­ment.

It’s ei­ther “you fire peo­ple and keep the share­hold­ers happy — but, if they keep the peo­ple and make labour happy, then you make share­hold­ers un­happy”.

For Sibanye’s plat­inum mines in Rusten­burg to do bet­ter than Still­wa­ter, the rand would have to weaken or the plat­inum price would have to in­crease, he said.

Makwe Masilela, an an­a­lyst at BP Bern­stein, said Still­wa­ter could tem­po­rar­ily off­set some of the loss made in Sibanye’s Rusten­burg mines.

“The pal­la­dium mine will help tem­po­rar­ily, but it will be wasted money if [Frone­man] in­tends to com­pletely de­pend on it.

“All it does is help them di­ver­sify their earn­ings. You can­not cross-sub­sidise for­ever,” Masilela said.

Frone­man, who had a four­plan PGM strat­egy and had com­pleted three plat­inum ac­qui­si­tions al­ready, with the last one meant to be in South Africa, said he still saw op­por­tu­ni­ties in the coun­try, al­though they would have to be care­fully as­sessed.

Some an­a­lysts have said an­other ac­qui­si­tion would put the com­pany in more debt af­ter the Still­wa­ter ac­qui­si­tion and that share­hold­ers would not take well to that idea.

Frone­man dis­agreed, say­ing any good in­vest­ment can be fi­nanced as the com­pany had a lot of sup­port from in­ter­na­tional banks to fund any growth strat­egy thanks to the Still­wa­ter deal.

He said the fourth ac­qui­si­tion de­pended on tim­ing and not whether the com­pany would be able to fund it.

“We need to cre­ate an en­vi­ron­ment where there is reg­u­la­tory cer­tainty, where we know what the cost of do­ing busi­ness in South Africa is.

“At the mo­ment there is a height­ened level of po­lit­i­cal, pol­icy and reg­u­la­tory uncertainty,” Frone­man said.

When the tim­ing was right for a fourth ac­qui­si­tion, he added, it was most likely go­ing to be in South Africa — but there was no rush and it was “go­ing to have to stack up against all the op­tions that are out there. So time will tell.”

Plat­inum prices are forecast to re­main weak, while pal­la­dium prices are pro­jected to con­tinue the pos­i­tive rally.

Sibanye said the plat­inum price would have to be $1 200 an ounce for the in­dus­try to con­tinue with­out loss, while the pal­la­dium price would have to be at $800 to $900 an ounce.

All it does is help them di­ver­sify their earn­ings

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