Sibanye’s interim profit surges, raises dividend expectations

Sibanye-Stillwater’s unique blend of gold and platinum group metal (PGM) mines in SA and offshore reaped the benefit of higher metal prices and contributed to a hefty surge in interim profit, raising expectations for a handsome dividend.

As the world’s largest PGM supplier, Sibanye’s mines in SA were disrupted by the government’s hard lockdown of the economy at the end of March, halving production at its gold and PGM mines in the second quarter of its interim period to end-June 2020.

But higher prices for gold and PGMs in both dollar and rand terms contributed to basic earnings rocketing to R9.4bn from a loss of R255m in the same period a year earlier.

With revenue more than doubling to R55bn, Sibanye said its adjusted earnings before interest, tax, depreciation and amortisation (ebitda) was eightfold higher at R16.5bn.

Adjusted editda to net debt is one of the key metrics in assessing Sibanye’s debt covenants and a barometer for when dividends would resume. From a deeply indebted position when it bought Stillwater Mining, a US-based palladium and platinum miner, for $2.2bn cash in 2017, Sibanye now has an adjusted ebitda to net debt ratio of 0.55 times, well below the 1.25 times at the end of 2019.

Sibanye CEO Neal Froneman has said that once the company had its ebitda to net debt below a one times ratio it would resume dividend payments after last paying them in 2016. He has flagged the second half of 2020 as the time shareholders should expect dividends.

“The group delivered strong financial results and a solid operating performance for the first half of 2020, with improved production across all the operating segments and higher received precious metal prices for the period, considerably boosting group profitability,” Sibanye said.

The economic lockdown in SA, which was eased in April and June, allowing underground mines to gradually return to full capacity, resulted in June quarter gold and PGM output halving.

By the end of July, its SA PGM mines were back to three quarters of normalised production and its gold mines were at 90% of output. The SA mines should be back to usual levels in the fourth quarter of the year.

“Supported by a better operational outlook than for the first half of 2020 and with precious metals prices having recovered close to levels prior to the global Covid-19 economic lockdown, the outlook for the second half of 2020 is positive,” Sibanye said.

There has been a declining trend in Covid infections at its SA mines “since the peaks experienced in mid-July 2020.”

“While it is envisaged that it will be necessary to sustain current measures for a prolonged period to avoid a resurgence in Covid-19 cases, the likelihood of more stringent measures being reimposed appears remote at present,” Sibanye said.

Among the big contributors to the interim production performance was the inclusion of the former Lonmin operations — now called Marikana — in Sibanye’s results for a full six months.

Interim gold production was 17% higher at 403,621oz compared with the same period a year earlier when the mines were negatively affected by five-month wage strike by the Association of Mineworkers and Construction Union (Amcu).

PGM production in SA was 5% higher at 657,828oz of platinum, palladium, rhodium and gold.

The Stillwater operations in Montana grew mined output by 5% to 297,740oz of palladium and platinum, but recycled production fell by 6% to 397,472oz of the two metals and rhodium because of slowing deliveries of anti-pollution devices from diesel and petrol engines due to the global Covid-19 pandemic.

Metal sales in the US realised a 43% increase in dollar prices for palladium and platinum, while in SA, PGM sales achieved a nearly doubling of prices in rand terms, while gold jumped by nearly half in rand terms.

Sibanye paid R1.5bn in wages during the lockdown, while tens of millions of rand were spent on donations and community interventions around its mines.

seccombea@businesslive.co.za