Neal Froneman. Picture: BLOOMBERG
Neal Froneman. Picture: BLOOMBERG

Debt-laden Sibanye-Stillwater will put in place a structure to generate cash within the next eight weeks, to address investors’ concern about its debt and a potential rights issue that has halved the company’s share price so far this year.

Sibanye’s net debt stands at about R23bn and analysts have flagged concern about the ratio of net debt to adjusted earnings before interest, tax, depreciation and amortisation (ebitda), which was 2.4 times at the end of March.

That is below the covenant requirement of less than 3.5 times for the remainder of this year and 2.5 times thereafter.

Addressing this concern directly, Sibanye CEO Neal Froneman said the company would put in place a streaming deal in the US, raising $500m, and potentially another structure worth $100m around the inventory held at its recycling business in the US.

That $600m is worth R7.64bn at the prevailing exchange rate, and so amounts to about one-third of the company's R23bn net debt.

The dramatic change in Sibanye’s debt level came from the $2.2bn cash purchase of the entire Stillwater palladium and platinum mining company.

Sibanye was keen to put those two structures in place to address its debt, but tax changes signed into law by US President Donald Trump brought negative tax consequences and the deals had to be restructured, Froneman told an analysts’ briefing.

The two deals would be in place within the next six to eight weeks, Froneman said. The market would be "pleasantly surprised" by the nature and competitiveness of the transactions, he said. He declined to elaborate on them but said the net debt to ebitda level could drop to 1.5 times after they were in place.

Analysts pointed out that streaming was often a sign of a company in trouble

Streaming, which is the upfront payment for a supply of metal over the life of a project, has strong critics, with one Bank of America analyst pointing out during the presentation that these types of deals usually smacked of companies in crisis.

Froneman said these concerns had been taken into account and the streaming deal would realise value from metals like gold from Stillwater.

There has been speculation in the past that the platinum byproduct at Stillwater could be the source of a streaming deal.

Froneman reiterated that Sibanye would not issue shares to address its debt levels, citing this as a factor in the company’s falling share price, and arguing that a rights issue was perhaps being factored into the stock.

"We would rather sit on our hands for two to four years and deleverage with the assets we have," Froneman said. "But we don’t want to sit on our hands for that time. We have things we want to do."

Sibanye was aggressively tackling costs at its South African gold and platinum mines, having started a process to take R2bn out of the region’s costs.

Froneman flagged reduced production from its Driefontein gold mine, where there have been seven fatalities in underground seismic events, with the consequences to be felt for the next few quarters.

There was another small seismic event at the Driefontein mine, damaging working areas on the western side of the mine. Management was considering whether to fix the damage or not. "It depends on how organised labour comes to the party," Froneman said.