Sibanye wraps up debt restructure and eyes dividends and growth

Sibanye-Stillwater has completed repairing its balance sheet after it shot the lights out in its September quarter, slashing debt and reporting a record financial performance as its mines in SA returned to post-lockdown operations quicker than expected.

Sibanye, which has the bulk of its platinum group metals (PGM) mines and all its gold mines in SA, as well as PGM operations in the US and Zimbabwe, is the world’s largest supplier of PGMs.

It bought the Stillwater palladium and platinum mining company for $2.2bn (R35.8bn) cash in 2017, loading its balance sheet with debt, forcing the company to suspend dividend payments.

It reported record adjusted earnings before interest, tax, depreciation and amortisation (ebitda) of R15.6bn for the three months to end-September, a near trebling compared to the same period a year earlier.

Adjusted ebitda for the quarter was higher than the R14.96bn adjusted ebitda for the whole of Sibanye’s 2019 financial year.

“Despite still being impacted by Covid-19 constraints during third-quarter 2020, the consistent operational performance coupled with high commodity prices underpinned an exceptional financial result for the group,” CEO Neal Froneman said.

A weakening of the rand against the dollar and higher dollar prices for PGMs resulted in record earnings for the SA PGM business, he said. 

The net debt to adjusted ebitda ratio is one of the most closely watched metrics in Sibanye and is now at 0.33 times, well within its debt covenants and below the 0.55 times reached by the interim period at end-June when it paid out a R1.4bn dividend.

Sibanye reduced its net debt by R11.2bn during the quarter by converting a convertible bond during October, which if considered against the balance sheet by end-September would bring the net debt to adjusted ebitda ratio down to 0.05 times.

Sibanye’s cash grew to R15.2bn from R12bn from the end of June, which, when combined with available debt facilities, gives it a powerful war chest of more than R28bn.

Froneman has spoken often of further growth in Sibanye, looking for battery metal opportunities as well as a further gold investment in North America. With debt firmly under control and plenty of firepower on the balance sheet, this strategy can now evolve.

“The strategic deleveraging which has been a primary focus since 2017 is now complete,” said Froneman.

“At current commodity prices and the prevailing exchange rate, and with the SA operations having attained normalised production run rates, the group is likely to continue generating significant cash flow,” he said.

“We will continue to maintain a disciplined approach to capital allocation, with the primary focus on securing the future of the company and delivering on our vision of superior value creation for all our stakeholders by prioritising dividends, share buybacks when appropriate, and smart, value accretive growth.”

To put Sibanye’s performances into context, the SA PGM business generated adjusted ebitda of R9.3bn, which is nearly three quarters of the R12.8bn Sibanye has spent buying Aquarius Platinum and the Kroondal mine, the Rustenburg complex from Anglo American Platinum, and the whole of Lonmin, now called Marikana, since it embarked on its PGM strategy in 2016.

This was despite the SA PGM mines producing a fifth less metal than they did in the same quarter a year earlier because of the ramp up to pre-lockdown output levels.

A major contributor to the improved balance sheet was the performance of the SA operations, which were put into a hard national lockdown at the end of March and gradually allowed to return to full operations by June in measured phases.

“The build-up to normalised production levels at the SA operations has progressed better than planned,” said Froneman.

“The manner in which employees have been reintegrated into the operations without a notable increase in [Covid-19] infection rates or operational disruptions validates the more gradual recall and production build-up strategy,” he said.

The three large gold operations in SA were at 99% of production levels and its PGM mines at 93% despite having 92% and 88% of the workforces at each respective division back at work.

“While there has been a slight increase in infections in recent weeks, we do not anticipate a significant rise in cases or significant risk of the operations being closed,” Froneman said.

In Montana in the US, production at the Stillwater operations was 8% lower in the quarter because of restrictions to ensure safe working practices and the mitigation of Covid-19 risk factors.

“There has been a sharp spike in infections in the US and the state of Montana, and there has been a corresponding increase in positive cases at the US PGM operations,” Froneman said.

seccombea@businesslive.co.za