Moody’s hails end of Sibanye gold strike
Ratings agency puts the cost of the five-month strike at R2.2bn, but says its end and the raising of $245m is credit positive
The end of Sibanye-Stillwater’s five-month gold strike and its raising of $245m (about R3.5bn) earlier in April was “credit positive” for the miner and meant it would now be able to improve its ability meet its short-term debt obligations, says ratings agency Moody's Investors Service.
In what was quite a departure from the ominous tone of the ratings agency’s February downgrade of Sibanye, Moody’s latest note dated April 19, two days after the end of the strike, says it is likely the company will look to refinance its credit facilities and thereby improve its liquidity position.
Moody’s also noted that Sibanye had lost R2.2bn to the industrial action.
Sibanye CEO Neal Froneman said on April 17 at the signing of a wage accord with the Association of Mineworkers and Construction Union (Amcu) that the company had lost R1.6bn to the strike, but company spokesperson James Wellsted said this figure was only up to the end of the March quarter and that a more accurate figure was closer to the Moody’s number.
Moody’s downgrade of Sibanye in February led to an angry response by Charl Keyter, the company CFO, who tore into the agency’s methodology in assessing its financial risk, calling it “fatally flawed” at the group’s annual results presentation that same month.
In the downgrade, Moody’s flagged potential risk in Sibanye’s ability to refinance a nearly fully drawn R6bn revolving credit facility that matures in November 2019. It raised the issue of the poor safety performance in the gold division in the first half of 2018 and the protracted nature of the Amcu strike.
The February note warned of potential strikes stemming from platinum sector wage talks in SA. Amcu is by far the most powerful and largely represented union at Sibanye’s platinum operations and, once the takeover of Lonmin is concluded before June, there will be additional assets where Amcu is the sole recognised union.
There is work under way to resume ventilation of shafts closed during the strike, to make working areas safe again, as well as to induct Amcu members returning to their working crews
Moody’s downgraded its Sibanye rating to Ba3 from Ba2. A “Ba” rating implies there is “substantial credit risk” according to the Moody’s rating system, while numbers between 1 and 3 are a modifier denoting the level of risk within that rating category.
“We, however, anticipate that with the gold strike now concluded, the company will look to refinance and extend the maturity of its rand RCF, which will strengthen the company’s liquidity position further,” Moody’s analysts said in their latest note dated April 19, two days after the end of the strike.
The $120m raised in an equity placement on April 10 and the $125m banked on April 11 from forward sales of 105,906oz of gold to Citibank in the fourth quarter had shored up Sibanye’s cash balance, Moody’s noted.
The roughly R3.5bn from these two events and undrawn debt facilities gave Sibanye R10bn to fend off a strike in its SA platinum division, which will start wage talks in June, see through the consequences of the gold strike and protect its debt covenants.
Moody’s noted, however, that the forward gold sales funds are a “temporary measure” because it will not realise that income during the fourth quarter when the mines are expected to be fully returned to pre-strike production levels, depending on the outcome of a restructuring exercise that has already started.
Sibanye told the market in mid-February that it had notified organised labour at its Driefontein and Beatrix gold mines that it was restructuring its workforce by up to 6,670 people to stem hefty losses at the mines in Gauteng and the Free State.
Wellsted said there is work under way to resume ventilation of shafts closed during the strike, to make working areas safe again, and induct Amcu members returning to their working crews.
As part of the settlement with Amcu, which signed the same wage agreement that three other unions signed in November 2018 shortly before Amcu called its strike on November 21, Sibanye agreed to a R4,000 ex gratia payment to the union’s 14,000 Sibanye gold division members as a sweetener to end the strike.
This payment was extended to all 30,000 qualifying gold employees, bringing the cost of the olive branch to R120m.