Gold mine troubles thwart Sibanye’s debt plans

Sibanye-Stillwater remained in a loss-making position, with the difficulties at its gold operations offsetting strong performances in its platinum group metal (PGM) businesses and thwarting its plans to reduce debt.

Sibanye, the largest source of SA gold and a major international producer of PGMs, reported a post-tax loss of R2.5bn for the year to end-December compared with a R4.4bn loss the year before.

Sibanye’s plans to repay debt were thwarted by the strike by about 14,000 employees, or half its workforce, at its gold mines since November 21 that has dragged on for three months, said CEO Neal Froneman.

The gold mines lost 75,390oz of gold during the year to the strike, safety incidents in the first half of the year in which 21 employees were killed and safety stoppages. It resulted in adjusted earnings before interest, tax, depreciation and amortisation (ebitda) falling 75% to R1.36bn.

Sibanye reports adjusted ebitda, which is not a recognised accounting metric, but one against which its debt covenants are measured.

The fall in earnings from the gold division meant Sibanye could not repay debt as quickly as it had intended.

“Further progress on our deleveraging strategy has been delayed by the sharp decline in adjusted ebitda from our SA gold operations in 2018, with the group’s net debt to adjusted ebitda ratio of 2.5 times at the end of 2018, only marginally improved on the position at the end of 2017,” said Froneman.

Net debt of R21.3bn by the end of December 2018 was 8% lower than at the same period a year earlier. Sibanye has a market capitalisation of R35.5bn.

Sibanye’s lenders have given the company some breathing space, keeping a 3.5 times debt covenant metric in place until the end of 2019.

“We have sufficient headroom on our lender covenants and our liquidity remains adequate. Ongoing strength in spot precious metals prices in 2019 is expected to support our deleveraging efforts in the coming year,” Froneman said.

Gold contributes just 16% of the company’s adjusted ebitda, which was 8% lower for the year at R8.4bn, down from 58% in 2017.

Sibanye has launched a process to restructure five shafts and could lose up to 6,600 jobs. Four of those shafts are at the Driefontein mine and one at Beatrix.

An example of the difficulties Sibanye is facing at its gold mines is the Driefontein complex, where all-in sustaining costs shot up by 73% to R866,984/kg in the second half of the year against a received gold price of R552,526/kg. The anticipated benefit from repairs to a quake-affected part of the mine were not realised because of the strike, Froneman said

The US palladium and platinum business now contributes half of the company’s adjusted ebitda, buoyed by the increasing price of palladium because of a deep deficit of the metal used to make autocatalytic devices for petrol engines.

The SA and Zimbabwean PGM businesses make up 34% of adjusted ebitda, also lifted by palladium and rhodium prices.

The Southern African PGM assets reported an 81% increase in adjusted ebitda of R2.9bn as the ongoing weakness in the platinum price was more than offset by price improvements in its sister metals.

Sibanye’s revenue for the year grew by 10% to R50.7bn, with the US PGM business bumping up revenue by 73% and the Southern African PGM unit increasing revenues by 14%. The gold business reported a 16% fall in revenue.

seccombea@businesslive.co.za