‘Investment has gone on strike’
Sibanye-Stillwater CEO Neal Froneman says the country desperately needs business-friendly policies
Neal Froneman, CEO of gold and platinum mining giant Sibanye-Stillwater, says recently announced retrenchments — the company's third big jobs cut in a year — are the result of plunging commodity prices and years of government failures “coming home to roost ”.
“Falling platinum group metal [PGM] prices have had the single biggest impact on our business, but on top of this the costs of poor government have escalated at an unacceptable rate,” says Froneman.
“A government that has lost control of Transnet, forcing us to truck at prohibitive cost our chrome ore, a bulk commodity which should go on rail.
“A government whose mismanagement of Eskom has seen one of our biggest costs, electricity, escalate by a ridiculous 12%,
14%, 15%.
“And of course we’re all plagued with crime and having to spend a fortune on security because we can’t rely on the SAPS. All of these things come home to roost, eventually.”
Froneman is in charge of the businessgovernment workstream on crime and corruption, which seems to be having little tangible effect. “Law enforcement is so broken and the wheels of justice turn so slowly. I’m confident we’ll be successful but it’s going to happen over a multiyear timeframe.”
While Sibanye has been fending off extortion syndicates, PGM prices on which it depends for 90% of its revenue have more than halved year on year from nearly R50,000/oz to about R23,000/oz.
“So parts of the business become unprofitable. And you can’t allow lossmaking shafts to operate and be crosssubsidised because you don’t know how long this could continue.”
Fund manager Coronation does not believe it’s going to turn any time soon. They’ve dumped the PGM sector, saying the threat to it posed by electric vehicles (EVs) is being ignored.
But Froneman is more optimistic, suggesting the cycle will change in six to 12 months. “As quickly as it went down it will go up. When interest rates start dropping off, especially in the US, the demand for motor vehicles will come back.”
And for the foreseeable future these will be internal combustion engine (ICE) vehicles that need catalysers, made with PGMs, to reduce harmful emissions.
He doesn’t see EVs as the threat Coronation and others do.
“We’ve always said the EV penetration rates are overstated. Battery EVs are probably facing bigger headwinds than ICE vehicles, driven by consumer preferences. The infrastructure is not in place, they’ve got range anxiety, they’re tracing increasing prices because subsidies have dropped off. They’re finding that EVs in cold climates don’t work as well.”
With a better realisation of the challenges has come a rebalancing of the market, he says.
Meanwhile with the bulk of its revenue coming from PGMs, Sibanye is having to “pull our belts very tight” and focus on the balance sheet, he says, “which is why you’ve seen us move so quickly to reduce costs, our single biggest cost being of course people and labour”.
Not all shareholders and analysts are convinced there has been enough such focus. There have been suggestions that the company is at a crossroads and will have to do some fundamental restrategising to meet new trends such as the global push towards greener energy sources and the rise of ESG (environmental, social and governance) investing.
“For now, while margins are tight, we need to be focused on our operations and get through this phase,” says Froneman. “We’re not at a crossroads in terms of having to develop new businesses or new strategy or anything like that.”
Downplaying the threat of EVs doesn’t mean he’s taking the push towards greener energy sources lightly, just that he puts his faith in hybrids — and the longevity of ICE popularity.
“Battery EVs have a place but ICEs will still be around for a long time. The optimum solution seems to be hybrids, where you use the good aspects of electric but back it up with petrol engines. And we have exposure to both.
“Of course, what you ultimately look forward to is the green hydrogen economy, which also uses PGMs and fuel cells and so on. But it will be 10 years before this is mainstream. ICEs will remain a very important part of the business.”
The rise of ESG investing has impacted Sibanye positively, Froneman says.
“Our whole strategy has been about pivoting into a green metals company. Gold is an insurance policy when global economies go pear-shaped like they are at the moment, which is why gold is performing.”
The company’s commodity profile is “very environmentally orientated”.
“Our operating model is not just primary mining. We’ve been growing our recycling business and tailings retreatment business which has added to our environmental credentials.
“I think we’re probably one of the leaders in sustainability strategy.”
Meanwhile, he believes the industry in South Africa is facing an existential threat, and not just because the department of mineral resources & energy is taking forever to introduce a new mining cadastre system to rescue applications for mining and exploration licences from the chaos they’ve been mired in for years.
He doesn’t think a new cadastre system on its own will make much of a difference.
“You can introduce new systems but if investors are going to be constantly threatened with expropriation without compensation and nationalisation of mines, they’re just not going to invest, it doesn’t matter what systems you put in place.
“If we don’t get the investment climate right, if we don’t get government respecting business, respecting people willing to invest money and put it at risk, they’re not going to do it,” Froneman says.
“Investment is on strike despite the president claiming all this investment is coming into the country. Most of it is companies investing in ensuring they can provide power for themselves through renewable energy and can lower their carbon footprint.
“It’s not the capital investment in fixed assets and growth of the industry that will create jobs.”
The government’s narrative and policies are not investor friendly, he says.
“South Africa desperately needs new leadership and new thinking that involves being business friendly, because there’s no solution to poverty and inequality unless you create employment.
“The private sector is good at doing that. Nurture the private sector and it will deliver.”
For now, while margins are tight, we need to be focused on our operations and get through this phase