EDITORIAL: Sibanye flies high until a suit and a strike pop the balloon

Sibanye-Stillwater on Thursday became the latest mining company to cement its place as one of the biggest winners in the commodity price boom, posting a record R33bn profit and making it rain with R14bn in shareholder payouts.

It would have been a perfect day to crack open a bottle of bubbly for Neal Froneman, the straight-talking CEO of the world’s biggest platinum group metals miner. No such luck. The day before Froneman was to present an earnings report, Appian Capital issued a statement saying it had filed a $1.2bn (R18bn) lawsuit against Sibanye for backing out of a deal to buy two mines in Brazil. 

Then, on the day Froneman was supposed to sing the praises of the company, workers represented by the National Union of Mineworkers, Uasa and the Association of Mineworkers and Construction Union (Amcu) voted to down tools at Sibanye’s gold operations, after a ballot overseen by the Council for of Conciliation, Mediation and Arbitration (CCMA).

The strike is probably the least of investors’ and Froneman’s worries. If history is any guide, union leaders should have learnt from the 2019 strike by Amcu at the same Sibanye’s operations. It dragged on for five months, costing the company R1.6bn and leaving 14,000 workers without wages to feed their families, pay school fees or repay debts.  

Amcu was holding out for R1,000 a month in additional wages after three other unions had agreed to take between R700 and R825 over three years. In the end, Amcu settled for the same offer — a lesson to union leaders that such ill-conceived strikes at distressed mines could force them into eating humble pie and possibly even threaten their role as worker representatives. 

Sure, the envisaged industrial action this year will underline workers’ determination to receive a greater share of the surging profits from Sibanye, which has been riding on higher prices for the metals used in vehicle exhausts to reduce harmful emissions — palladium scaled record highs on Monday. Gold has also been cruising higher as Russia’s invasion of Ukraine rekindled its appeal as a safe store of value during such uncertainties and as a hedge against rising inflation.  

But the strike can cripple ailing gold operations, add more than R2.5bn to the wage bill by July 2023 and potentially force the closure of shafts. Sibanye is exhibit A on how costly it is to run a gold mine in SA as measured by the so-called all-in sustaining cost (AISC), which came in at about $1,700/oz. That is almost double that of Canada’s Barrick Gold and Newmont Corporation. 

Perhaps the biggest party pooper is Appian Capital. The UK private equity outfit is suing Sibanye for $1.2bn over the latter’s decision in January to invoke “the material adverse change clause”  — a rarely used tool in mergers & acquisitions to withdraw from deals in the event of ill-fortune — on the grounds that failure of part of the wall of the opencast mine had undermined the commercial logic of the deal.  

The timing of the announcement on Wednesday prompted the suspicion — rightly or wrongly — that Appian was deliberately putting out “superficial and wrong” information to tarnish the image of the company ahead of results.  

Either way, the size of the claim, equivalent to 54% of Sibanye’s annual profit, was big enough to cast a shadow on Sibanye’s stellar showing in the fiscal year to the end of December. An annoyed Froneman had to answer multiple questions from investors and reporters on how confident he was about Sibanye’s position in the dispute, saying he was assured that a court in the UK would rule in its favour.   

But with historical cases in the US and UK suggesting that regulatory bodies and courts are reluctant to extricate buyers from signed deals, it would be wise to find a resolution soon to allow Sibanye to flaunt its sparkling operational performance without a $1.2bn claim hanging over it.