Clever, not lucky: Sibanye-Stillwater’s mine in Rustenburg. Picture: Sowetan/Antonio Muchave
Clever, not lucky: Sibanye-Stillwater’s mine in Rustenburg. Picture: Sowetan/Antonio Muchave

Sibanye-Stillwater is but one major listed company that could have brought its own energy supply on-stream, were it not for energy minister Gwede Mantashe and the government’s inexplicable sloth over licensing and regulating supply from independent power producers (IPPs). Helped by an astonishing rally in the palladium price, Sibanye has had a very good year and gained about 220% on the JSE. It could have been even better, had more power been available at a better price. We asked CEO Neal Froneman where the company is now in terms of getting off Eskom’s crumbling grid.

NF: We started in 2013 with a photovoltaic project of 150MW. We managed to get into the queue, but there have been basically no approvals. We’ve designed the project, we’ve done the environmental impact, we have the land.

The issues are: if you’re going to spend R3bn-R4bn on a project, you want to know that you’ve got certainty of recovering the investment by being able to utilise your energy not just at, let’s say, your gold operations where you originally positioned the project, but through your entire group.

Eskom maintains a monopoly on the transmission and you get no clarity on the costing, you get no clarity on [whether] you have certainty to do it, so you can’t just go ahead. Ours is probably one of the most advanced in the mining sector and there is none of these approvals coming forward because of ideologies and indecisiveness that we find in government. These could have been significant contributors to [easing] the shortage … because, as I say, we’re not the only company in this position.

Neal Froneman: Government is all talk and zero action. Picture: Freddy Mavunda
Neal Froneman: Government is all talk and zero action. Picture: Freddy Mavunda

Are you hopeful this will now change, given stage 6 load-shedding and signs of life from the department of energy?

NF: You know what, the answer is "no".

Government is all talk and zero action. It is constrained in its political ideals and relationships and I hope it proves me wrong. But I am so disillusioned with the lack of leadership, I have my doubts.

That’s terrible. Is there not a case to be made for the mining sector to take the government to court and force them to do the right thing with IPPs?

NF: Unfortunately, it’s the only way we seem to get outcomes that are fair and balanced; it relates to the Mining Charter, it relates to environmental regulations and of course in this case I think your question is very good.

But it’s not just the mining sector, it’s business as a whole. It has significant leverage and I think business needs to get more demanding for the government to act in the national interest.

They are civil servants; as taxpayers, we pay their salaries, they work for us, and to some extent I think they think we all work for them.

Nevertheless, there needs to be concerted pressure put on the government from all sectors on this one specifically, but also on fixing Eskom.

Business has a lot to add. It has the capacity, it has the skills, we have the experience of running business and there is no doubt that privately run business is run much better than state-owned businesses. I think business would contribute as long as there is a political will to change the status quo. I would say once we had that, that would be a catalyst for growth.

As for the state of the platinum group metals (PGM) sector, did you guys think this would happen to the palladium price — that we’d be sitting at $2,000 an ounce this December? Or were you just really lucky in buying Stillwater?

NF: Listen, we made our entry into the PGM sector based on very granular models of supply and demand and we called the palladium deficit absolutely correctly.

We took a huge bet, took on lots of debt, in buying Stillwater.

We weren’t lucky.

We had to convince our board that we really understood those dynamics. What I can say though is that palladium prices have exceeded our own expectations. I think we’re thankful, and probably lucky on that aspect. But the commercial rationale was very clear in our minds.

But at what point will there be switching back to platinum, with palladium prices where they are now?

NF: The interesting thing is that we actually see it as a necessity for that to happen. We have been funding research on substitution with a major fabricator.

You can’t substitute all palladium with platinum. There are certain applications where platinum doesn’t work in high-temperature exhaust systems so there’s a small amount that you can’t substitute.

But substitution is absolutely necessary to bring the market — both palladium and platinum — into balance.

It’s also interesting to note that palladium, even at these high prices, is only tens of dollars in an exhaust system. It’s small. [Substitution] is going to happen a lot slower than what I think we all expect. As such I don’t see a lot of downside in the palladium price. I probably don’t see a lot of upside either. I think it’s in a good space.

Do you have any insight as to what has happened to all the palladium stockpiled by Russia over recent years?

NF: We don’t know exactly because it’s a well-kept secret but you can see through the actions of certain participants that those inventories are probably at a record low. There’s the strategic inventory that the Russian government owns and that’s very sticky and that’s unlikely to come to the market; the other Russian stockpile has been coming into the market in a controlled way but it’s almost depleted and that’s why you’ve seen no weakness in the price.

Is platinum also likely to be sticky at these low prices for the foreseeable future?

NF: Much like we analysed palladium by looking at surpluses and deficits, platinum unfortunately is in a surplus and while it remains there I think the price will remain depressed.

Supply discipline is now critical — what the SA producers must not do is overproduce platinum because it’ll depress the price even further. These are very much industrial metals, they’re not precious metals. Having said that, our models show that platinum will probably move into a balanced position and then a deficit in the next 18 months to two years. I think you could see a price increase before then because the market is generally efficient.

Going back to the debt you took on to buy Stillwater … It’s now $1.5bn, or 1.7 times earnings before interest, taxation, depreciation and amortisation (ebitda). Do you aim to repay that in total, or return cash to shareholders, or do more deals?

NF: Paying our debt down is our top priority. You do need some gearing on a balance sheet but you don’t want too much. What is that level? We would want to see a net debt:ebitda ratio below 0.3. We’ve said our aim is to get to one and below; that should happen within the next year, but under steady-state conditions it’s 0.3. Once we get below one, we would like to re-introduce our dividend and become an industry-leading dividend payer again. It’s not M&A. We were aggressive entering the PGM sector but unless we can find other value-accretive strategies, such as in battery metals, that would only be after we’d re-established our dividend policy.