Sibanye shares rally on forecast

Expectation of a solid operational performance of its local and US platinum group metals

SIBANYE Stillwater’s share price yesterday strengthened more than 5 percent on its expectation of a solid operational performance of its local and US platinum group metals (PGM) operations despite the protracted strike at its gold operations that have claimed four lives.

The group, which has received regulatory approval to acquire Lonmin, the world’s third-largest platinum producer, told investors yesterday that its PGM operations had accounted for about 74 percent of adjusted earnings before interest, tax, depreciation and amortisation in the first half of last year.

“The strategic benefits of the group’s commodity and geographic diversification are clearly evident, with operational disruptions in the gold division offset by rising PGM prices and the solid operational performance of the PGM operations,” the company said in its strategic update.

Sibanye expects higher basket prices, to bode well for revenue at its US PGM operations and for local PGM operations to continue operating well.

Sibanye said the palladium price had increased by more than 75 percent from $74 (R1 029) an ounce to more than $1 300 an ounce, since it announced the acquisition of the US-based platinum asset Stillwater asset in December 2016.

It said 4E PGM production at its local operations for 2018 would likely be about 1.17 million ounces, ahead of targets, while the robust palladium and rhodium prices together with the weaker rand/dollar exchange rate, had boosted the rand 4E PGM basket price by 19 percent in 2018.

Seleho Tsatsi, an investment analyst at Johannesburg Anchor Capital, said the strength in PGMs, particularly palladium, was a major tailwind for Sibanye.

“Gold prices have also held up relatively well, perhaps as investors assess the possibility of fewer than expected rate hikes from the Fed going forward which makes gold more appealing comparatively,” he said.

Sibanye has had to revise its production target for gold due to the strike, with gold production expected to fall modestly to 1.1 million ounces, which were below the previous guidance of between 1.13 million and 1.16 million ounces for the year due to the strike.

Four people have died and several others have been injured in violent incidents in the Association of Mineworkers and Construction Union-led strike since November 21.

The company said it had taken several measures to buffer the effects of the strike from redeploying employees reporting for work to specific production areas to reducing minimising overhead costs by shutting down ventilation and refrigeration to areas that were not operational.

It said the no-work no pay principle applied with wages generally accounting for around 50 percent of operating costs at the deep level gold mines.

Ian Cruickshanks, a senior economist at the SA Institute of Race Relations, said that PGMs were Sibanye’s “salvation’’.

He also said continuation of the strike at its gold mines signalled that production would decline.

“The strike is still ongoing, and although the company has stockpiled ore the stockpiles are likely to be a decline in due course,” he said.

Sibanye’s share price gained 3 percent on the JSE yesterday to close at R10.97