Spare a thought for CEOs who have made a name for wheeling and dealing, and who have now to settle all their purchases, let the balance sheet catch its breath and pass on some rewards to shareholders.
Neal Froneman, head of Sibanye-Stillwater, must have a keen sense of déjà vu in interviews with journalists, analysts and investors when he is asked for the umpteenth time what is next for the world’s largest platinum group metals (PGMs) supplier.
Consider the virtual blitzkrieg Sibanye launched in the PGMs industry, growing from zero to the largest within five years, with an audacious all-cash $2.2bn deal for palladium and platinum producer Stillwater Mining in the US just ahead of a hot run in the palladium price. It then made a brilliant all-share R4.3bn purchase for the whole of Lonmin, which was in dire financial circumstances, and turned the assets into its flagship PGM trophy.
Froneman confronts the question at every results presentation and in virtually every interview with journalists: what are you buying next and when?
He has for the longest time spoken of adding more gold to the deep-level and aged three gold mining complexes in SA. Sibanye wants to add North American gold to its portfolio, that much Froneman has said.
Is something likely to be added soon? Unlikely.
Gold prices are high and valuations of gold mining companies are high. Froneman and his team are a canny bunch and they’re not the type to buy something at the top of the price cycle.
When asked about growth, he’s unequivocal about what is of interest to Sibanye and he has been for years. So, to hear that Sibanye will add more gold to the portfolio is not new. What will be new is when he talks definitively about timing, as he did about the company’s PGM strategy. That was crystal clear. Sibanye is not quite there yet with additional growth.
That doesn’t mean there won’t be an opportunistic jump at something that has been overlooked by others and presents value.
The other area Sibanye is looking at intently for a deal is the battery metals market. With car companies such as Tesla and other manufacturers looking at electric drive trains — the industry term for the device that propels the vehicle — this is a great opportunity for Sibanye.
Sibanye has bought metals analysis firm SFA Oxford to study this market and entry points. It also has a partnership with Thakadu Battery Materials at the Marikana base metals refinery in a process to generate nickel sulphate, a chemical ingredient used in large batteries.
Whether Sibanye buys the whole of Thakadu or keeps the empowerment credits it gets from the partnership remains to be seen, but it’s the quickest and easiest access point for Sibanye to get into the market.
But this is getting ahead of the story.
Froneman was clear when quizzed about growth at the company’s interim results. The strategy for the foreseeable future is to further reduce gross debt, reward shareholders with dividends after a three-year hiatus after the Stillwater purchase, and build up cash reserves.
Would shareholders have the stomach for another deal so quickly after the indigestion on the Sibanye balance sheet caused by the hefty Stillwater transaction?
Investors buy Sibanye knowing it’s a dynamic company with a keen eye for smart deals. But they also want to see rewards — big rewards — for backing the strategy.
It will take just one big bad deal to blot Sibanye’s copy book and bring out the “I told you so!” critics. Pausing for a while to bring shareholders comfort, dividends, and bedding down a strong suite of PGM assets is the better option for the moment.
The trajectory of the Covid-19 pandemic and its effect on the global economies is still unfolding, creating profound uncertainty about commodity demand.
Demand for PGMs relies heavily on economic prosperity, with buying of cars and trucks using platinum, palladium and rhodium in antipollution devices making it a key segment for the metals.
Froneman doesn’t have much longer left at Sibanye and he has told Business Day of increasingly letting go of the reins to let managers of the business get on with their jobs.
While he is very much the face and voice of Sibanye he has a strong, clever team behind him and investors can rest assured the aggressive strategy of growth will remain intact once he retires.
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