Sibanye eyes return to dividends in 2020

Putting a difficult interim period behind it, world number one platinum miner Sibanye-Stillwater forecast a much-improved second half to 2019 and a possible return to paying dividends in 2020.

The forecast came with a number of conditions, including no strike disruptions to its platinum group metal (PGM) supply from SA resulting from wage talks, as well as sustained metal prices, particularly for gold, palladium and rhodium. 

“Despite the potential risks to global growth arising from ongoing trade hostilities between the US and China, the fundamentals of the precious metal commodity markets remain structurally positive,” Sibanye CEO Neal Froneman said.

The inclusion of Lonmin, once the world’s third-largest platinum miner, after an all-share takeover would also contribute towards a much-improved second-half performance, he said.

Sibanye, which is heavily laden with debt stemming from its $2.2bn cash purchase of the whole of US palladium and platinum miner Stillwater, will use the windfall from a strong increase in the prices of those metals to tackle its debt.

“Sibanye should perform exceptionally well as long as metal prices remain high ... we believe the success of Sibanye’s strategy was always premised on higher commodity prices and the current environment will put the wind in its sails,” Nedbank analyst Arnold van Graan said.

“At these high metal prices, the company should deleverage faster than planned, giving it much greater breathing space and optionality in its pursuit of further growth,” he said.

Plans to lower debt levels in the first half were stymied by a five-month strike called by the Association of Mineworkers and Construction Union (Amcu) at Sibanye’s gold mines in SA over a wage dispute.

Strike setback

The strike ended in April, but the mines only returned to pre-strike production levels in August, resulting in the company posting an interim loss before royalties and tax of R2.2bn in the six months to end-June compared to a R267m profit in the same period a year earlier.

With R2.8bn of deferred tax, however, Sibanye’s post-tax loss was R181m compared to a R78m profit a year ago.

Gross debt stood at R26.9bn at the end of June, up from R23.8bn at the end of December, while cash was R6bn, up from R2.5bn. The interim cash position included the proceeds of a R3.45bn capital raise in April.

Sibanye intended to bring its gross debt to R15bn in the short term, said CFO Charl Keyter, adding that once the net debt to adjusted earnings before interest, tax, depreciation and amortisation (ebitda) ratio reached 1.5 times, the board would consider paying a cash dividend. The company last paid a cash dividend in 2016.

Sibanye and its lenders use net debt to adjusted ebitda to measure its debt covenants.

Froneman said as measured by lenders for assessing the covenant, Sibanye’s net debt to adjusted ebitda was 2.5 times for the interim period.

If prevailing metal prices are sustained for the balance of the year, Sibanye forecast that ratio would drop to 1.8 times by year-end, with extra cash generation and debt repayments “supporting the possible resumption of cash dividends during 2020”.

Sibanye has plans to mitigate the negative consequences if there were to be an Amcu strike at its SA platinum division. Wage talks started in July.

Sibanye warned “extended strike action could impact negatively on future adjusted ebitda and cash flows”.

Sibanye would closely monitor how Amcu obtained support for any strike it might call at its platinum mines since the change in labour legislation called for secret ballots on strike action, Froneman said.

seccombea@businesslive.co.za