Picture: ISTOCK
Picture: ISTOCK

Sibanye-Stillwater delayed R550m of capital expenditure at its South African gold and platinum operations because of the strong rand eroding profit margins, while its US platinum group metal (PGM) business underscored the benefits of the company’s strategy of geographical diversification.

A win for the group, which has mines in SA, Zimbabwe and the US, was the reduction in its debt metrics and compliance with its debt covenants, something that is under scrutiny by investors and analysts after the company loaded itself with R23bn of debt to fund the $2.2bn cash purchase of Stillwater Mining in the US last year.

Sibanye’s debt covenant metric — a ratio of net debt to adjusted earnings before interest, tax, depreciation and amortisation (ebitda) — fell to 2.4 times by the end of March from 2.6 times at the end of December. The US palladium and platinum operations made up 60% of the company’s adjusted ebitda.

The debt covenants stipulate the ratio may not surpass 3.5 times in the short term and 2.5 times in the longer term.

Debt reduction is foremost in management’s thinking and it is considering various options including streaming agreements and recycled inventory pipeline financing.

CEO Neal Froneman stressed that a rights issue was not among the options.

"An operational review under a sustained strong rand environment across group operations is well advanced," Froneman said.

Sibanye’s data for the first quarter’s performance did not include other financial metrics, which are reserved for the interim and full-year reporting periods.

The three gold mines in SA took the hardest hit from the stronger rand during the first three months of the year, while the local PGM business fared better because of stringent cost controls at its Rustenburg mines.

"Another solid operating performance by the South African and US PGM operations offset a challenging quarter for the South African gold operations, which were impacted by a lower average rand gold price and a number of safety related stoppages and operational disruptions," said Froneman.

Sibanye reported a 62% year-on-year drop in adjusted ebitda to R374m at its gold operations for the March quarter, from R991m before, mainly because of a 2% fall in the received rand gold price and a poor safety performance that resulted in the death of four employees at its mines during the period.

Operational problems included the collapse of power supply to its Beatrix gold mine in the Free State during a violent storm.

Gold output in SA fell to 291,500oz during the quarter from 330,100oz a year earlier.

The received price dipped to R507,719/kg from nearly R516,000/kg before. All-in sustaining costs rose to R513,829/kg from R493,872/kg.

Half of the decline in gold production came from the closure of the three unprofitable Cooke shafts late last year. The power problems at Beatrix, safety stoppages at Driefontein and Kloof following the fatal accidents, as well as reduced gold coming from dump retreatment operations accounted for the balance.

Sibanye suspended R250m worth of capital expenditure at its Burnstone gold mine and Driefontein.

Sibanye kept its full-year gold production forecast intact at between 1.24-million ounces and 1.29-million ounces, at an all-in sustaining cost of up to R495,000/kg, pointing out lost output would be recovered during the balance of the year. The rand weakened to R12.60 against the dollar, from an average R11.96 in the first quarter.

The South African platinum mines generated 286,194oz of four platinum group metals, including gold, unchanged from a year earlier.

However, all-in sustaining costs fell by 4% to R10,186/oz. The mines posted adjusted ebitda of R258m, up from R220m a year earlier.

The received price for the four metals rose to an average R12,839/oz from R12,109/oz a year before.

Chrome production, which is a byproduct of PGM mining in SA, rose to 194,000 tonnes from 185,000 tonnes. Prices, however, fell to $223 a tonne from $370 a tonne.

Sibanye forecast the South African PGM mines would produce up to 1.15-million ounces of metal for the year at an all-in sustaining cost of R11,250/oz. It deferred R300m of planned capital expenditure.

The standout performance for the quarter was the US operation, with improved output coinciding with a higher PGM price in dollar terms.

The US mines produced 148,549oz of palladium and platinum, up from 147,046oz in the December quarter while all-in sustaining costs were kept at $632/oz.

The Columbus processing plant in Montana pushed through a record amount of 345,821oz of three platinum group metals during the quarter, with increased mined metal offsetting a small dip in recycled metal to 191,404oz.

The American operation is forecast to produce up to 610,000oz of palladium and platinum this year at an all-in sustaining cost of $680/oz.