Sibanye heads for record drop

Johannesburg - Sibanye Gold [JSE:SGL] headed for the biggest drop on record in Johannesburg trading as safety stoppages meant the biggest miner of South African gold produced less of the precious metal than it could have in the first half of the year.

"If everything had gone right, we know that’s highly unlikely, there’s 1.4 tonnes of additional gold that we could have produced had we not had the disruptions," chief executive officer Neal Froneman said in an interview.

"That would have resulted in much better revenue and costs."

Sibanye’s headline earnings rose more than six fold to R1.1bn in the six months to June 30, the Westonaria, South Africa-based company said in a statement on Thursday.

Sibanye increased its first-half dividend to R0.85 a share, or 36% of normalized profit, compared with R0.10 a year ago.

"The financial results look very good and probably are very good but I know we did not achieve our potential," Froneman said in Johannesburg.

Still, the stock dropped as much as 12%, the most since the company was spun out of Gold Fields in 2013, to R57.05, and was 9.6% lower at R58.75 by 1:11 p.m. in the city. It has more than doubled this year as higher bullion prices and a weak rand boosted margins.

"The shares were building in too-high expectations for earnings," said Wayne McCurrie who helps manage R40bn at Momentum Wealth in South Africa. "You never get 100 percent performance in South Africa. There are always safety stoppages or electricity supply problems or some kind of disruption."

Sibanye had eight fatalities and more than 70 safety stoppages in the first half of the year, almost one every three days. Froneman said the company is redoubling efforts to improve safety.

Output rises

Even with stoppages, production increased 5% to 746 800 ounces in the first half, the company said. All-in sustaining costs increased 3% in local-currency terms to R448 922 an ounce. In dollars, they dropped 20% to $908 an ounce.

The company received the twin benefits of a gold price that climbed 13% in the year to June 30 while the South African rand weakened 17%.

Sibanye maintained its forecast for full-year gold production at 1.6 million ounces even as it reviews the future of its Cooke 4 shaft. It expects all-in sustaining costs of about $910 an ounce, and kept its capital-expenditure prediction at R3.9bn.

Its platinum mines, which produced a record 92 773 ounces of platinum group metals in the second quarter, are seen producing 260 000 ounces in the nine months to December 31.

Froneman has stated he’s keen to use the company’s rising cash reserves and share price to make acquisitions that would help underpin the dividend in the long term. However, the rebound in precious metals is making it more difficult to buy assets cheaply, he said.

"Value acquisition opportunities which were more prevalent at the beginning of the year are less obvious currently," Froneman said in the statement.

"Sibanye will continue to evaluate opportunities where value creation can be derived through the realization of cost and operational synergies."