Sibanye stares down Amcu
Diversifying from gold and out of SA has enabled Sibanye to withstand a protracted strike at three operations
It used to be that a prolonged strike at a major SA gold miner was a very big deal. One that stretched past 12 weeks would, in the past, have been nail-biting stuff.
Not so for the strike that started on November 21 at Sibanye-Stillwater’s gold mines, which the company has so far weathered fairly well.
Sibanye’s planning for the labour action means its 2018 gold production is expected to be 34,600kg — only slightly below the lower end of its guidance of 35,000kg.
The mines saved on labour costs due to the no-work, no-pay principle. More importantly, revenues at Sibanye’s platinum group metals (PGMs) operations thrived thanks to higher prices.
Lenders too have agreed to retain the upper limit of the company’s revolving credit facilities until the end of the year on the same terms as before.
CEO Neal Froneman calls this "a vote of confidence in the fundamental outlook for the group", which "provides sufficient financial flexibility".
Sibanye’s ability to weather the gold strike stems from the fact that it is actually no longer an SA gold mining company.
Hurbey Geldenhuys, head of research at Vunani Securities, says though Sibanye is viewed by many market participants as a deep-level gold miner, and priced as such, it should really be seen as a PGM miner with its key asset being its Stillwater mine in the US state of Montana.
It’s not only Sibanye that’s diversified out of gold and out of the country; there’s hardly a true SA gold miner left on the JSE. Most have sold off some or all of their SA assets, with Harmony Gold the exception that still has major exposure to SA, as Geldenhuys notes.
Stillwater, meanwhile, is one of the best mining assets in the world, he says. "It’s safe, mechanised and highly profitable. It has a significantly larger exposure to palladium than any of its SA peers."
Therein lies another reason for Sibanye’s good fortune.
Even though platinum prices again sagged to the dreaded $800 an ounce mark this week, miners have been boosted by extraordinarily high prices for other PGMs, especially palladium but also rhodium.
Palladium is trading at a record high of more than $1,300 an ounce, an increase of more than 75% since Sibanye announced it would acquire Stillwater in December 2016.
In SA, robust palladium and rhodium prices, together with the weaker rand, boosted the rand-denominated PGM basket price by 19% during the course of 2018 to more than R15,700 an ounce, significantly enhancing revenue, Sibanye said.
"The PGM part of the business is flying," says René Hochreiter, mining analyst at Noah Capital Markets. At these prices the Stillwater mine alone could pay back Sibanye’s $1bn debt in just over two years, Hochreiter estimates. "This is quite a lot better than I thought in 2018 with the palladium price hanging about at $1,100 an ounce … it would have taken seven or eight years to pay back the debt."
While Sibanye’s gold operations are holding their own despite the strike, Hochreiter says: "If push comes to shove, Sibanye- Stillwater will probably close down its gold division or sell the mines."
The striking union, the Association of Mineworkers & Construction Union (Amcu), resolved on Monday to increase pressure on the company by extending the strike to its platinum operations, sparking a drop in the share price.
The strike, in which four people have died, is over wages — three other unions have reached an agreement but Amcu is holding out.
Amcu was a key player in the longest strike in SA history, in which workers on the platinum belt downed tools for more than five months. That strike was the backdrop for the Marikana massacre in 2012, in which 34 protesters were killed by police.
Sibanye has said Amcu’s decision to extend the strike would not prompt a higher wage offer.
The company says the wider strike won’t affect its acquisition of deeply troubled platinum miner Lonmin, but Amcu has at least delayed it.
The union has appealed the Competition Tribunal’s approval of the Sibanye-Lonmin merger, meaning it will be pushed back. A shareholder vote on the matter scheduled for this month has been postponed as the parties wait for a court date.