Sibanye-Stillwater’s SA gold operations are reaping the rewards of a rising gold price, achieving an almost three-fold year-on-year increase in adjusted earnings for the third quarter.
Sibanye reported adjusted ebitda (earnings before interest, taxes, depreciation and amortisation) from its SA gold operations at R1.35bn in the September quarter on an average gold price that was 24% higher than in the matching period last year.
The gold price rally is supported by growing global demand, which reached a record high of more than $100bn in the third quarter, according to the World Gold Council.
Higher gold prices also offset a decline in gold production, which reached 4,263kg in the quarter, down 9% from the previous comparable period. This was due partly to closure of a shaft at its Kloof operation, where production fell 43% in the period. The combination of decreased production and a 17% drop in gold sales resulted in a 9% increase in all-in sustaining costs for the group’s gold business, making the increase in adjusted earnings even more striking.
Sibanye CEO Neal Froneman said the strong financial performance was evidence of “the financial leverage of the SA gold operations to higher gold prices”. With the gold price continuing to rise in the final quarter, he said substantial cash flow was expected from the group’s Driefontein and Beatrix operations as their output increased, bringing down unit costs amid the favourable price environment.
While gold output was down, SA platinum group metals (PGM) production rose 5% from the previous matching period to 14,741kg, in line with annual guidance.
While cost stability also enabled the group’s SA PGM operations to deliver a positive adjusted ebitda of R1.6bn for the period, this was still less than half the levels seen in the third quarter of last year.
Meanwhile, Sibanye’s PGM operations in the US posted an adjusted loss of R108m with production down slightly at 3,483kg. “Despite solid operational delivery from the SA and US PGM operations, persistent low PGM prices continued to squeeze margins, negatively impacting group adjusted ebitda,” Froneman said.
However, he was optimistic that the restructuring of its SA PGM operations concluded in the first half of the year would bring down costs and improve operational efficiency during the final quarter and into next year.
“Further financial benefits are expected to materialise from the operational restructuring and optimisation undertaken to date which, together with restructuring of the US PGM operations and Sandouville refinery, are expected to further improve group profitability,” he said.
Sibanye’s US PGM operations are also expected to benefit from an amendment to US mining regulations, which is set to bring down costs for PGM miners operating in the country.
Last month, the miner highlighted changes to the US treasury’s Inflation Reduction Act, which grants a 10% production credit for goods that use critical minerals. In the US context, that includes platinum and palladium, allowing companies to claim back 10% of their production costs.
Since 2023, companies can no longer claim credits for extraction costs, resulting in the majority of funding being directed towards the final refiners of PGMs, leaving primary miners at a disadvantage.
With the amended Inflation Reduction Act now allowing for the inclusion of extraction costs along with processing and refining costs, Sibanye’s US PGM operations are expected to benefit by an estimated $140m in 2023 and $100m in 2024, according to Froneman.
“The tangible support from the US authorities to secure local supply of critical minerals through the Inflation Reduction Act confirms the appropriateness of our strategic positioning in the US and European ecosystems in response to our expectations of increasing multi-polarity and regionalisation of global trade,” he said.
“The EU and its members have expressed similar intentions to support the development of regional supply chains in Europe,” he said, highlighting recent approval of a R9.9bn “green loan” for the group’s Keliber lithium project, supported by European Investment Bank and other leading global banks.
The rising gold price and beneficial regulatory amendments saw Sibanye maintaining a healthy balance sheet in the period under review, with adjusted ebitda at R3.3bn, up 9% year on year.
This improved financial performance was further supported by a 9% rise in zinc production at the Century retreatment operations in Australia which, “due to greater operational stability and higher metal prices, were able to deliver significantly improved financial contributions,” Froneman said. Higher output and cost management led to Century delivering R565m in adjusted ebitda, compared with R53m the year before.
Sibanye’s share price had its biggest rise in eight weeks on Tuesday, up 10.15% at R22.36. It has been battered since peaking at R75 in March 2022 at about the time Russia escalated its war against Ukraine.
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