Sibanye-Stillwater’s gold division had a terrible interim period, with a record number of fatalities and a low gold price contributing to the sharp fall in the gold and platinum miner’s profit for the period.
Sibanye, which started as a gold miner with just three mines, has embarked on aggressive growth in platinum group metals (PGMs), snapping up and consolidating mines around Rustenburg and buying the largest US producer of the metals, a strategy that has paid off handsomely as the gold base in SA came under tremendous pressure in the six months to end-June.
Sibanye reported interim profit of R78m, a vast improvement on the R4.8bn loss in the same period a year earlier, when it recorded impairments of R2.8bn. Revenue for the company rose to R23.9bn from R19.3bn. Its pretax and royalties profit was R267m from a R5bn loss the year before.
Despite the difficult operating environment and potentially crippling operational challenges, we have endured....
— Neal Froneman, Sibanye-Stillwater CEO
A big cost for Sibanye in the interim period was a finance expense of R1.4bn, which was flat from the same period a year earlier. Cash on the balance sheet fell to R2.1bn from R6.5bn. Net debt grew to R25bn at the end of June from R22bn a year earlier.
The value of Sibanye’s shares have halved so far in 2018, giving it a market capitalisation of R17.8bn.
The PGM assets around Rustenburg performed strongly, as did those in the US, but the gold division was the stand out disappointment in the period, with 21 people killed at Sibanye’s Driefontein and Kloof mines to the west of Johannesburg in just six months, making up nearly half the total industry’s fatalities for the period.
"Despite the difficult operating environment and potentially crippling operational challenges, we have endured, the outlook for the remainder of the year remains positive, with the weaker rand in particular providing significant earnings upside for the South African region," said CEO Neal Froneman.
"The inclusion of a full six months production from the US PGM operations, which were acquired in May 2017, and higher PGM basket prices, offset lower revenue from the South African gold operations, which declined by R1.596bn," he said.
Gold output fell by 13% to 598,500oz because of the closure of three Cooke shafts, which accounted for 42,000oz, and the safety issues at its other mines as well as operational disruptions from power failures and seismic events made up 48,000oz in lost production.
The received rand gold price dropped by 1% compared to the same time a year ago, coming in at R519,994/kg. All-in sustaining costs at the gold operations were R520,488/kg.
Costs at the gold division were expected to improve once the seismic damage at one of the Driefontein mines was repaired and full production resumed early in 2019.
The contribution of the gold operations to group operating profit fell to about a quarter from nearly three quarters in the same period a year earlier.
"The PGM operations in both regions delivered positive cash flow for the period, largely offsetting the decline from the South African gold operations and validating the commodity and geographic diversification undertaken by the group since 2015," said Froneman.
The South African PGM mines around Rustenburg had steady production and rising rand prices for the basket of metals they produced, mainly driven by palladium and rhodium, meaning they would become an increasingly important source of profit for Sibanye, he said.
The PGM mines in SA kept output steady at 569,166oz of four primary metals (platinum, palladium, rhodium and gold), but its all-in sustaining costs fell 4% to R10,106/oz. The received price for the metals increased 8% to R12,941/oz
"This is a notable reversal in the fortunes of these South African PGM operations, which generated significant losses for many years and reinforces the rationale of industry consolidation," said Froneman.
He reiterated Sibanye’s commitment to the all-share transaction to buy the whole of Lonmin, which has neighbouring mines, concentrators, smelting and refining plants.
"Engagement with the South African competition authorities continues. Pending the fulfilment of the remaining conditions precedent, we remain fully committed to the transaction and believe that the rationale for the transaction remains compelling for all stakeholders," he said, adding the deal should be finalised before the end of 2018.
The Stillwater assets in the US delivered mined production of 293,959oz of palladium and platinum at an all-in sustaining cost of $653/oz. The processing complex handled 360,246oz of recycled platinum, palladium and rhodium.
Looking ahead, Froneman said the South African platinum division would deliver up to 1.15-million ounces of metal at a cost close to R10,750/oz. The gold division would generate up to 1.21-million ounces of gold at a cost of not more than R530,000/kg.
In the US, output would be steady at up to 610,000oz at a cost of no more than $680/oz for both palladium and platinum.
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