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Sibanye Gold [JSE:SGL] has released its full-year results. It paid a dividend at the interim stage and again, at the end of the year. Sixty-two cents, and fifty cents at the half-year. Neal Froneman, chief executive of Sibanye Gold joined Alec and Gugu in the CNBC studio to chat about the results.
The numbers are as we’ve come to expect. You are continuing to surprise the market. The market share is up 2% today.
Yes, they’re up two percent but so are our competitors, Goldfields and Anglo. It doesn’t seem to have gone into the market yet, but I have no doubt that it will because the dividend from a yield perspective is really, benchmark. There’s the best in the gold industry, internationally at three-point-seven percent.
Yesterday Sasol stated that they’re going to reassess their entire dividend policy. Are you targeting that? Is that really where you want to grow the dividends into the future?
Absolutely. I think the fundamental issue with companies, is returning cash back to shareholders. It completes that commercial cycle. We are very aware that in our sector, there’s a real need for high, dividend-yield players. At three-point-seven percent, we probably don’t compare to the rest of the industry and other areas. Nevertheless, if you want gold exposure and you want to be successful, and achieve a premium rate, then focusing on dividends is extremely important.
I’m sure there are lessons to learn with the dip in the oil price, though. If a similar thing were to happen to the gold price, would it make your dividend yield objectives more difficult to manage?
Well, I think we’d still want to be the benchmark yield payer in the gold sector. Our dividend policy is between 25% and 35% of normalised earnings, so I think investors would understand if the Rand/gold price went down. Then, they should expect the dividend to go down as well. If you look at some of the information that we’ve put out there, our first call on cash is dividends and we’re targeting about R1bn per year. Clearly, it would be nice if it went up a little bit, every year, certainly. For example, we would not want to compromise our dividend payout, by spending capital in the wrong ways or in the wrong places. It’s a completely different focus, to the way in which, gold companies have been run in the last ten years.
You issued 17% of your equity for Gold 1 assets. Have they kicked in the way you expected? You used to run the company so you knew what you were getting.
Yes. I think we will present some graphs today at the analyst’s presentation that show nice progress in increasing volumes and decreasing costs at the Cook assets. We did say that we’re looking at a five-year average in terms of the projections that would make it earnings enhancing, on a per share basis. We still believe that will come through but as of Year 1, which was only seven months, you’re right: on an ‘all in cost’ basis, they were actually, slightly negative. I’m very confident that this year, we’ll start seeing the earnings enhancing nature coming through. In terms of the electricity issues that we deal with as a country, it’s certainly starting to affect us very negatively. Personally, we don’t think it’s going to be here for the short term. Some of the announcements we included today were about doing things that are more concrete, other than just talking about it.
Going off the grid.
That’s probably the ultimate position. It’s not an anti-South African position. I think it’s contributing to the solution and not the problem but certainly, if we talk about independent power producers and perhaps something bigger, we would just like access to the amounts of energy we use in the form of an independent power producer.
How realistic is that, that you could be completely independent of Eskom?
I think that as long as the regulatory environment changes, it is possible if you take a longer-term view. Many industries are certainly, quite energy intensive but in a much smaller way, which generate their own power. The difference is that they do it right next to their businesses. We’re clearly talking about 500 to 600mw here. It would be foolish to try transporting enough coal to fire up a coal-fired power station, immediately adjacent to Rietfontein or Kloof, so we have to look at it in a different way. We have to use Eskom’s transmission capacity. Of course, you’ll now start getting into a difficult regulatory environment but at this stage, that aspect is still quite conceptual. The solar power has been through feasibility and we’re already starting to look at some of the environmental impact studies, permitting and so on.
How much are you prepared to risk, becoming independent on power?
You have to put it in perspective. Twenty percent of our costs are related to electricity. It’s the second biggest, single cost and labour is at 55%, so 75% of our costs in the gold sector are related to labour and electricity. Quite honestly, in many respects, you are dependent on something you can’t really control. I think you have a fiduciary duty to do something that you can tell your shareholders is more than just talking about it. The 150mw that may come with the solar initiative is going to cost about R3bn. Again, we’re not talking about putting our balance sheet on the line although I have to tell you; R3bn over a few years, is possible but many institutions focus on infrastructure funding and certainly, if it’s green, there are even more beneficial ways of funding those types of initiatives.
R3bn – 150mw: that’s basically, one quarter. The other three-quarters…
That’s where we look towards something more material, such as participating with an independent power producer, which has a coalfield, and is probably already well advanced with an energy initiative in terms of a coal-fired power station. There are other aspects as well. Obviously, the solar powered initiative only works during the day. It’s not the first prize, but it is certainly part of the solution.
Is the plan to have this energy contribute to your revenue streams as well?
Would we want to make a profit out if it? It’s not really our core business and we have to be careful that we’re not distracted into areas that take our focus off our core business.
A year ago, you did talk about being interested in Anglo Platinum’s [JSE:AMS] platinum prospect. Has that come to the fore? Have you had any further development?
I think it’s on public record that we’re in the process. We remain interested in an entry into the platinum sector as long as it’s at the right price, and that’s the difficulty.
So your hat is still, very much in the ring there.
Absolutely.
The second issue was Beatrix. We thought that thing could turn very ugly. You put it to bed quickly. What happened?
I found two unions very responsible in sorting out the violence. Both AMCU and NUM worked closely with us. All credit to all parties, including management. Within three or four days, we signed a peace accord, which, as you know, hasn’t been broadly achievable in the sector.
Does that position you well for the next round (you’re going to be talking to labour, which, as you said, accounts for 50% of your costs) into the future?
Yes. I’m probably more optimistic than most of my colleagues are. I think the industry has to remain strong and firm. In other words, we have to have strong balance sheets. We have to have robust strike plans. If we’re not in a strong position, we will be levered and abused and quite honestly, I don’t think it’s about pleading poverty. It’s about pleading the sustainability of our business. It’s about retaining the jobs – the 150 000-odd jobs in the gold sector. That’s what it’s about.
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