Sibanye-Stillwater could crank up cost-cutting if PGM prices fall, CEO says

Sibanye-Stillwater could step up its cost-cutting exercise if commodity prices deteriorate further, CEO Neal Froneman warns.

The scenario raises the potential risks of further job losses across its mainstay SA platinum group metals (PGM) business, which provides employment to more than 46,000 employees, including contractors.

Sibanye-Stillwater is among SA’s biggest private-sector employers, with a total workforce of just more than 81,000 if gold operations are included. 

“Unfortunately, that is the scenario we have to seriously consider. It’s very hard to forecast commodity markets and things can change quickly,” Froneman said in a wide-ranging interview with Business Day.

“We have a policy that we don’t run loss-making businesses. To protect the broader group and to be sustainable, we will probably have to go through further shaft closures if the prices deteriorate from the current levels. I suppose the socioeconomic impact of retrenchments is very hard and heavy, and it’s last thing we want to do.”

Froneman’s comments come amid much uncertainty about the global economic outlook, which tends to drive demand for commodities. But PGMs also face a perceived existential threat from growing penetration of battery electric vehicles.

While rhodium appears to have bottomed out at $4,000 an ounce compared with the dizzy heights of almost $30,000 an ounce in 2021, palladium sank to its lowest level in more than five years on Tuesday as it fell below $1,000 an ounce. Platinum has been relatively stable, though it is down about 13% so far this year.

The sharp fall in average PGM basket prices, compounded by electricity supply disruptions and general cost inflation, have eroded profit margins of Sibanye and other industry players, causing the closure of old and high-cost shafts in the case of Sibanye.

At least 4,000 employees in its local PGM operations could be without jobs at the end of the current restructuring exercise, which will affect four of its shafts at Rustenburg, North West.

Sibanye-Stillwater is one of the world’s biggest PGM producers, with Anglo American Platinum, Impala Platinum and Northam Platinum.

Peak

Froneman said metal prices are likely to rise in the next 12-18 months given the apparent signs of a peak in the global interest rate hiking cycle, which is likely to be followed by a cut in interest rates.

“We are in an environment in which interest rates have peaked and should be coming down in the next 18 months. We can look forward to seeing an improvement in PGM prices, but I don’t think we are going back to where we were a few years ago,” Froneman said.

“In terms of the supply, I think there is a large part of the industry that is loss making at current prices. I expect supply to also drop off and investment in capital projects to drop off.

The high interest rate environment and general cost-of-living crisis has dampened demand for durable goods such as vehicles, leading to a drop in demand for PGMs.

The PGM inventories built up when Russia invaded Ukraine are falling, while the industry is likely to put capital projects on hold, Froneman said.

The downturn in the commodity markets come while Sibanye-Stillwater is pivoting its strategy towards battery metals.

“We have recognised that the growing battery electric vehicle market is an area where there is an opportunity to create value. That is why we are building lithium mines and have a nickel refinery,” Froneman said.

“But I don’t have to promote PGMs or battery metals at the expense of the other because we have a foot in both camps. We are a very small part in that battery vehicle market and will still benefit from whatever happens there. These perceptions that PGMs are just going to come to the end of their lives because of battery electric vehicles is wrong.”

Coronation, one of SA’s largest asset managers with more than R600bn in assets under custody, this year disinvested from the PGM sector, arguing that companies in the sector, which is the largest employer of all mineral commodities producers in SA, should consider decommissioning unprofitable mines. 

mahlangua@businesslive.co.za