While the gold price rally has seen many SA mining companies reporting strong financial performances this year, persistent cost pressures have kept the country’s gold production on a steady decline over the past several decades.
At the same time, SA’s substantial reserves of platinum group metals (PGMs) represent an opportunity to bring money into the country — but uncertain policies, crime, corruption and electricity issues mean the PGM sector has not been an attractive destination for investment.
Business Day spoke to James Wellsted, Sibanye-Stillwater’s head of investor relations and corporate affairs, about the group’s success in leveraging high gold prices, as well as how to bring down the cost of mining to make it more globally competitive and value-creating.
Sibanye’s gold operations have benefited from the gold price rally with a nearly threefold increase in adjusted earnings in quarter three 2024. What allowed you to successfully leverage gold prices?
We started to see the gold price come through thanks to the restructuring of our gold operations we initiated in 2023 and the closure of high-cost assets (like Kloof shaft 4). We also did a restructuring of SA regional services to reduce overheads in the region. Those benefits are going to start coming through during Q4 and into 2025, when we expect to see costs coming down, which will improve margins and enable those mines to generate more earnings and cash flow from the high gold price.
When Sibanye bought the Kloof, Driefontein and Beatrix mines from Gold Fields in 2013, they were in a similar position to where they have been recently — costs were spiralling up and production was going down. Through restructuring we were able to bring costs down substantially and generate very solid cash flows from those assets and that gave us the balance sheet and financial ability to pursue the strategic growth we have achieved in the past 10 years.
Our SA operations did record a three-fold increase in ebitda, but it actually should have been substantially higher. Unfortunately, our costs are high because our mines are mature — some of them are 70 years old.
Why is it so expensive to mine gold in SA?
Electricity costs and wage increases are major factors because these are vertical shaft, deep-level mines and are labour intensive. Because they are so deep, they require a lot of ventilation and cooling, which means a lot of electricity. Our mines also have a lot of water ingress, which must be pumped 3km-4km up to be treated or used again.
We are one of the biggest private users of electricity in the country, so Eskom’s tariff increases and load-shedding over the past 10 years have had a negative impact on operations and resulted in power as a component of operating costs increasing from about 9% in 2007 to 23% today. We now have a proactive renewables strategy under way to get 600MW of renewable energy by 2026, which will reduce our reliance on Eskom by about 30%.
SA mines are also old, which means mining spaces tend to be far away from shaft infrastructure. That has a significant impact on productivity, which impacts production and, in turn, unit costs.
Another major factor is labour. With wages typically going up at above-inflation rates, labour is about 50% of operating costs for gold mines in SA. We have also had two strikes since 2018 and, as a result, this is the first time we have really been able to operate in a stable manner since then.
On top of power issues and regulatory uncertainties, another major factor is crime, such as illegal mining and copper theft.
What makes SA an attractive destination for PGM mining and what are the main constraints facing SA’s PGM sector?
PGMs are only found in a few places, and SA has about 70% of the world’s supply, so it is attractive because of that. But, due to uncertain policies, crime, corruption and electricity issues, it has not been an attractive destination for investment.
Since the global financial crisis in 2008, there has been very little investment in the industry, which is why we are now seeing PGM production starting to decline.
Water is also going to become a real problem for the SA mining industry. It is an arid country, and the water is not being well managed.
Sibanye’s US PGM operations are expected to benefit substantially from the recent amendment to Section 45X of the Inflation Reduction Act. Would the SA PGM operations benefit from similar enabling policies to promote the mining of critical minerals in this country?
Our US PGM operations will benefit substantially now that they have amended the rules to include extraction and recycling, so that is a significant benefit for us. Any industry would benefit from policies that provide financial support, but our government can’t afford to do that. The government has increasingly become reliant on private sector support to turn this economy around.
What is needed to make SA’s PGM sector more globally competitive?
There has got to be more supportive legislation. We have seen more positive sentiment towards SA since the latest elections and following the government of national unity (GNU), and we are starting to see interest in the country and investors looking for opportunities here. But we still have a long way to go to attract significant investment into SA. As long as the GNU stays together, we have a good opportunity now to turn it around.
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