Sibanye writes down the value of its assets by R47bn

Precious metals producer Sibanye-Stillwater reported on Wednesday that it would swing to a loss in the year to end-December after the plunge in metal prices and production bottlenecks forced it to write down the value of its assets by R47.4bn.

Like the rest of its peers, Sibanye-Stillwater is ensnared in the commodity downward cycle, which has drained cash flows at a time when cost inflation remains a concern for the industry.

After a reprieve in December, platinum group metal (PGM) prices are under renewed pressure as prospects for quicker and deeper cuts in global interest rates dimmed, raising questions over how long players like Sibanye-Stillwater can sit out the downward cycle without embarking on a deeper cost-cutting exercise.

In October the group said it may retrench as much as 8.6% of the workforce at its main SA PGM operations, laying bare the full effect of falling commodity prices.

“Sibanye indicated that it is barely breaking even now. And last ... June it was already in a net debt position. It must spend to keep mines operating. If the commodity cycle takes another leg down, then it will have no choice but to scale down and take out operating expenses,” said Casparus Treurnicht, portfolio manager at Gryphon Asset Management.

“You can expect plenty of layoffs and mothballing should there be a global recession later this year. It is ironic that Sibanye has been making plenty of acquisitions lately and ventured into different metals when in fact it should have been preserving cash.”

However, renowned deal maker and CEO Neal Froneman has previously said that the ideal time for making acquisitions is at the bottom and not the top of the commodity cycle.

For the reporting period, Sibanye said the targeted assets for writedowns were in its US PGM operations, SA gold operations, Century zinc operation in Australia and the Sandouville nickel refinery in France. The asset impairments are a result of the 32% decline in average PGM basket prices, as well production bottlenecks in some mines and/or shafts.

Its headline earnings per share (HEPS), which strip out asset impairments, plummeted are likely to plummet 90%-91% from the same period a year ago.

The company said production across the asset base was in line with guidance, save for the US PGM recycling business, which fell 48% year on year. The lower output from the US PGM recycling business was due to consumers keeping their cars for longer because of the uncertain global environment and higher interest rates.

Its share price was down 4% to R20.16 on the JSE by early afternoon trade, having halved on a one-year view, according to data compiled by Infront.

Other PGM stocks have also fallen dramatically over the past year, reflecting a broader industry malaise that forced Anglo American Platinum (Amplats) to announce plans to cut 17% of its workforce this week.

Impala Platinum has tumbled 64% to R63.90 over the year, with Amplats losing 38% to R691.16 and Northam losing 29% to R108.84.

mahlangua@businesslive.co.za