Sibanye-Stillwater, which generated a record R33.1bn in profit in its 2021 year, expects the possibility of further support for precious metal prices as the conflict in Ukraine unfolds, but this could be hampered by reduced demand over the medium term.
The world’s largest platinum miner, with operations in the US and SA, benefited from the commodities boom, and paid its highest ever full-year dividend, totalling R13.8bn.
On Thursday, it declared a payout of 187c a share, bringing its full-year dividend to 497c.
With Russia having invaded Ukraine, some analysts have been bullish about SA miners reaping the benefit. Russia is the world’s largest producer of palladium but with sanctions in place it may not be able to sell it to a number of countries.
Sibanye-Stillwater group CEO Neal Froneman was more nuanced, expecting volatile platinum group metal (PGM) prices and longer-term pressure on demand.
If sanctions are placed on Russian miner Nornickel, he predicts “the palladium price will spike” in the short term. However, he said, PGM supply should normalise in the medium term even if European countries shift purchases of PGMs from Russia to China. Supply chain issues caused by the war could reduce demand for mining metals over the medium term.
Harnesses
For example, Ukraine makes “wireless harnesses” used by carmakers. “They are not able to produce because everybody is fighting the war, causing supply chain disruptions, which impacts the demand side.”
Slower car production, already affected by a shortage of semiconductor chips, will further reduce demand for PGMs. There are therefore some positives but more negatives in the situation, Froneman said.
Sibanye is diversifying by investing in battery metal production as pressure is placed on firms to be more environmentally sustainable and greener electric vehicles (EV) grow in popularity. In the past year, it invested in a lithium mine in Finland, a nickel processing venture in France and in a joint lithium mine venture in the state of Nevada in the US.
A severe shortage of the minerals used in EV batteries means production will be severely constrained, leading to higher prices, which would be positive for Sibanye.
Additionally, lower EV production means ordinary, petrol-powered cars will be around for a long time. This means demand for PGMs used in catalytic converters in exhausts in cars with internal combustion engines will remain high.
“The underpin from a demand point of view for PGMs is good over the long term. “Even now. It’s good,” Froneman said.
In SA, Sibanye is facing a strike at its gold operations after the National Union of Mineworkers (NUM), Amcu and 31% of Uasa members rejected the company’s offer of a 5%, or R700 a month increase each year for three years. The unions, excluding Solidarity, want an increase of R1,000 a month or 6%.
Froneman said despite the record profits, the company did not offer above-inflation raises just as it did not offer lower raises in challenging times.
“If you continuously increase wages above inflation, you actually undermine the sustainability of a business,” he told Business Day, adding that its SA gold mines are facing rising cost pressures due to higher electricity prices and an unreliable supply. This affects profit margins and “leads to having to mine higher grades of gold or even closing operations”.
Sibanye’s gold production in SA was only just above the lower end of its annual guidance because of the self-imposed suspension of operations at three shafts after an increasein fatalities.
Sibanye recorded 20 fatalities in 2021, which it said “was inconsistent with previous performance, and a significant deterioration from the nine fatalities which occurred during 2020 and six in 2019” .
It said a similar regression in fatal incidents was evident throughout the SA mining industry in 2021, with 74 fatalities experienced in total compared with 60 lives lost during 2020.
Regression
“The reasons for this industrywide regression are unclear, but the extended burden of Covid-19 has been a mentally, emotionally and physically depleting factor.”
In January, the group terminated its planned acquisition of the Santa Rita nickel and Serrote copper mines in Brazil from Appian Capital, a UK-based private equity firm.
Shortly after the announcement of the proposed transaction, Appian informed the company that a geotechnical event had occurred at the Santa Rita mine.
Sibanye said it assessed the event and concluded that it was likely to have a material and adverse effect on the business, which Appian said was “false, damaging and defamatory”.
Appian said in a statement: “In reality, the geotechnical event relied upon by Sibanye [to withdraw] is a localised instability that has little impact on the productivity of the mine.”
Froneman said it is not litigating the matter in the public domain and will not comment in detail, but if the dispute goes to trial, Sibanye is confident of the strength of its legal position.
The share price dropped 4.47% to R72.03 on Thursday, giving it a market capitalisation of R202.7bn.
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