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Sibanye Gold, the biggest producer of the metal from South African mines, is not thinking of spending new capital to grow local operations because of an uncertain investment environment.
“It’s difficult to convince shareholders that South African mining is an investment case,” Chief Executive Officer Neal Froneman said in Johannesburg Wednesday. The local investment climate is “not yet conducive to make decisions that require billions of rand.”
His comments come on the same day that mining companies are challenging some aspects of rules aimed at redistributing South Africa’s mineral wealth more broadly among its citizens, which they say deter fresh investments in new mining projects. The country used to be the world’s top gold producer but deeper ore bodies, labor strife, high costs and policy uncertainty have crimped output.
Thousands of workers at Sibanye’s local mines have been on strike over pay since November 21, and the destruction in value “has been enormous,” Froneman said, adding that the company “won’t be bullied” into agreeing to unsustainable wage increases.
Jurisdiction Discount
The company is reconsidering having a primary listing in South Africa, Froneman said.
“There is definitely a perception around a South Africa discount” relative to trading on exchanges in North America, he said, although that the differential has narrowed since Cyril Ramaphosa took over as the country’s president, improving sentiment.
Sibanye lost almost half its value in 2018 on concern it had taken on too much debt for acquisitions. It managed to pay down debt with a $500 million cash injection from a streaming deal with Wheaton Precious Metals Corp.
“The other part of the equation is being able to access capital without always raising debt - if you do raise debt, that will require you to be in an area where that debt is cheaper or easier to raise, so that will require a change in primary listing but we will always have a secondary listing on the JSE,” Froneman said.
Most of the company’s bonds are dollar-denominated, and these generally carry a lower rate than rand debt.
Froneman said Sibanye’s Driefontein mine, once part of Africa’s biggest gold-mining operation, is nearing the end of its life and the company won’t deepen it because of tight economic conditions.
Sibanye bought the operation from Gold Fields in 2013. At the time, it formed part of the Kloof-Driefontein complex, and the purchase also included the Beatrix operations. Kloof and Beatrix remain good-quality assets, Froneman said.
South Africa’s gold industry now employs just over 100 000 people, less than a fifth of the number in an industry that used to power the apartheid economy. The nation’s 130-year-old gold sector has produced half the bullion mined on Earth to date.
Battery Materials
Sibanye, which has diversified into platinum-group metals, wants exposure to the battery-materials industry within two years, Froneman said.
In February, Sibanye said it expected PGM production in the US to increase by as much as 14% this year, as it builds up production from its Blitz project. South African output will be slightly lower.
