PGM profit helps Sibanye survive strike in gold mines
Gold production losses from Amcu’s strike, which began after the competition tribunal approved Sibanye’s acquisition of Lonmin, has been mitigated by palladium’s rally
Sibanye-Stillwater’s diversification into platinum has helped mitigate losses from labour disruptions at its gold mines.
Sibanye objected to an earlier version of this article which interpreted a strategic update it released on January 10 as saying the strike was not hurting its profits.
“The lost revenue during the strike will definitely hurt the bottom line, but as per our statement, the strong performance of the platinum group metal (PGM) operations has mitigated this impact to some extent,” Sibanye investor relations senior vice-president James Wellsted said in an e-mail.
“The strategic benefits of the group’s commodity and geographic diversification are clearly evident, with operational disruptions in the gold division offset by rising platinum group metal (PGM) prices and the solid operational performance of the PGM operations,” Sibanye said in its strategic update.
Members of the Association of Mineworkers and Construction Union (Amcu) have been striking since November 21 2018, the day the competition tribunal gave its approval to Sibanye’s acquisition of Lonmin.
“We are saddened that there have been four employee fatalities, and several other employees have sustained injuries as a result of violent behaviour related to the strike,” Sibanye said.
Sibanye said it expected its gold production for 2018 to be about 34,600kg, only slightly missing its previous guidance of between 35,000kg and 36,000kg.
“As per convention, employees who do not report for work are not paid, with wages generally accounting for around 50% of operating costs at the deep-level goldmines,” Sibanye said.
Sibanye — which was originally created when Gold Fields divorced itself from most of its SA gold mines by separately listing them on the JSE — has under CEO Neal Froneman diversified both geographically and into platinum by first acquiring US mining group Stillwater, and now Lonmin.
In the third quarter of 2018 before the strike in its gold mines started, Sibanye said the profit contribution from its platinum mines had grown to 85% of the group’s total.
“The palladium price has increased by more than 75% from $744/oz to over $1,300/oz, since the acquisition of Stillwater was announced on December 9 2016,” Sibanye said.
“The robust palladium and rhodium prices (up more than 40% in US dollar terms in 2018), together with the weaker rand-dollar exchange rate (depreciating by 16% during 2018), boosted the rand PGM basket price by 19% during the course of the 2018 year to more than R15,700/oz, significantly enhancing revenue.”
Sibanye said it expects its US operations to meet their 590,000oz target for 2018.
“The SA PGM operations continue to perform well, with PGM production for 2018 expected to be approximately 1.17 million ounces, ahead of published annual guidance and costs at the bottom end of guidance,” Thursday’s statement said.
Regarding its acquisition of Lonmin, Sibanye said it is waiting for the final hearing of a competition appeal court case initiated by Amcu in December.
“Sibanye-Stillwater remains fully committed to the transaction, which it considers to remain compelling from both a strategic and value-creation perspective and will enhance the sustainability of the Lonmin operations for the benefit of all stakeholders.”
Correction: January 14 2019.
Sibanye objected to the original headline of this article “Platinum profit means strikers are hurting themselves more than us, Sibanye says”.
“The lost revenue during the strike will definitely hurt the bottom line, but as per our statement, the strong performance of the PGM operations has mitigated this impact to some extent,” Sibanye investor relations senior vice-president James Wellsted said in an e-mail.
Sibanye said the interpretation of its trading statement attributed to it was incorrect.
“The diversification means that we probably should be able to survive the strike, but we never said that to shareholders at all.”