Neal Froneman. Picture: MARTIN RHODES
Neal Froneman. Picture: MARTIN RHODES

Surging platinum group metal (PGM) prices have accelerated Sibanye-Stillwater’s balance sheet repairs, clearing the way for resumed dividends in mid-2020, CEO Neal Froneman says.

Sibanye, which has grown its PGM division from nothing to the world’s largest in four years, took on hefty debt when it paid $2.2bn (about R32.65bn) cash for US-based Stillwater Mining, a palladium and platinum producer, putting its balance sheet under pressure and leading to the withholding of dividends.

Palladium prices increased by more than 50% during 2019 and have shot up another quarter so far this year to unprecedented highs of $2,439/oz. Rhodium prices more than doubled during 2019 and platinum prices edged up by a fifth.

Sibanye’s gold division had a difficult start to 2019, with a five-month strike ending during the first quarter, then another three months to ramp up to steady state production during which the company shut some unprofitable shafts.

Sibanye executives are in a closed period, limiting what they can say about results ahead of a public release of its annual financial data on February 19, but Froneman was able to point to a good year for its PGM division perking up the company’s balance sheet.

“Our priority is debt reduction. Mathematically, we’ve deleveraged very quickly on a net debt to earnings before interest, tax, depreciation and amortisation (ebitda) ratio. Our earnings have grown enormously because of commodity prices,” he said.

The net debt to ebitda metric is the one used by lenders to judge Sibanye’s compliance with loan covenants and its ability to repay borrowings, making it a closely watched ratio by the market.

“So, what I can say is the deleveraging has essentially happened and gross debt is the next thing to come down,” Froneman said. “Our next step is to get our gross debt down. We were targeting getting it down from $1.8bn down to $1bn.”

It’s likely to be below that considering the ounces of metal coming from Sibanye and the high dollar prices and weak rand.

“We said we’d reinstate our dividend when we get to net debt to ebitda of one times or less. We’ll certainly be in a position to do that by midyear with an interim dividend,” he said.

New phase, new projects

Sibanye last paid a dividend in 2016. It said last year that it was likely to return to dividends in 2020 without being specific. “We’re in a new phase. Last year, we would have said we have another year to go and keep our heads down, but we’ve gained a year from what’s happened with commodity prices.”

With the surge in cash, Froneman and his team will consider the next step for Sibanye.

There are a number of growth projects within Sibanye, including completing the partially built Burnstone gold mine in Mpumalanga for about R1bn over two years. It could consider finishing Lonmin’s partially completed K4 shaft for PGMs, but that decision would depend on market conditions for platinum, palladium, rhodium and their sister metals.

Froneman has spoken about adding battery metals to Sibanye. It bought market specialists SFA Oxford to give input for its next big step in diversifying the business. “We’re still doing the work.”

There could be external growth, with Sibanye keen to add more gold to its portfolio. Froneman gave his thinking around speculation that Sibanye could make a bid for AngloGold Ashanti’s Mponeng mine, the world’s deepest at 4km below surface, and its tailings processing business, which are for sale.

“We need to build our gold portfolio in shallow, low-technical risk jurisdictions. Deep-level SA gold mines are not really going to fit our profile — it’s not going to help our risk profile — unless we get it for our price,” Froneman said.

“To improve our risk profile and move the needle, we need growth in jurisdictions such as the US. We need more Stillwaters in gold.”​

seccombea@businesslive.co.za

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