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

The Marikana assets have been the standout SA platinum assets for Sibanye-Stillwater, underscoring a smart transaction for the world’s largest platinum group metals (PGMs) supplier as it considers a return to dividends.

Sibanye bought the whole of financially constrained Lonmin, then the world’s third-largest platinum miner, for R4.3bn in shares in June 2019. The assets, renamed Marikana, are showing their true worth in the hands of Sibanye’s management.

Marikana was a major contributor to Sibanye’s record March quarter adjusted earnings before interest, tax, depreciation and amortisation (ebitda) of R11bn, compared with the R808m in the same period a year earlier.

Net debt to adjusted ebitda is the key metric for investors to watch as one of the debt covenants Sibanye management is closely focused on driving down and away from the danger zone. It’s also one that gives clues about returns to shareholders after the company suspended dividends in 2016 to focus on reducing debt as quickly as possible. The metric has come down to 0.75 times from 1.25 times at the end of December.

“The trajectory must still be down. This mustn’t be a flash in the pan. We have to watch global economic issues carefully. We need to reinstate our dividend before we embark on growth,” said Sibanye CEO Neal Froneman in an interview with Business Day last week. “The first opportunity to declare a dividend is probably in August and we’ll have to account for the impact of Covid-19 and global economic conditions,” he said.

When Sibanye released full-year results in February, Froneman said dividends were expected to resume in the first half of 2020.

The coronavirus pandemic has wrought havoc across the globe, forcing extended closures of economies such as that of SA towards end- March.

“We need to watch global economics the next six months carefully whether we go into a depression or a recovery. That will impact on PGMs,” he said. “Our primary focus is to make sure our deleveraging is on track. In the second quarter you’ll probably see a regression because of the lockdown in SA and the partial ramp-up.”

Pushed back

In SA and the US, where Sibanye has most of its assets, its strategy has been pushed back by about nine months because of the pandemic, he said.

On a revenue line, Marikana was the biggest earner in the March quarter, pulling in nearly R600m more than the large Rustenburg complex that Sibanye bought from Anglo American Platinum in 2017.

Marikana’s assets had lower all-in costs than Rustenburg, where they were once the poster child for expensive, unprofitable mines and contributed to the demise of Lonmin.

Using a very basic measurement of the difference between the price per ounce and the all-in cost of producing that ounce, Marikana generated R450m more than Rustenburg.

“The majority of the integration of the Marikana assets into Sibanye has been completed,” said Froneman. “Going forward it’s more about optimising the assets than integration.”

Sibanye has closed shafts at the end of their lives, cutting the workforce by 4,775 and removing duplicated services between the Rustenburg, Kroondal and Marikana platinum mines near Rustenburg.

“I think we’ll see the full benefits of the integration towards the end of 2020, when we get to a run rate of R1.2bn in synergies. It’s been a very successful acquisition for us.

“We now have assets that have a future and we can think about life extensions and growth under the right economic conditions,” Froneman said.

One of the growth projects the market has been waiting for years to come into production is the partially built K4 mine that Lonmin halted as its balance sheet dried up and the prices for platinum, which make up about two-thirds of PGMs coming out of Rustenburg mines, stay stubbornly low.

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