Sibanye-Stillwater today, 22 February 2018, reported operating and financial results for the 6 months ended 30 June 2017, delivering a strong operating and cost performance across the expanded Group in the second half of the year.
Both the SA gold and PGM operations delivered annual production above guidance and costs below the guided range. The cessation of mining at the loss-making Cooke operations, which was a primary reason for the year-on-year decline in gold production, is expected to reduce the all-in sustaining cost (AISC) for the gold operations in 2018 by approximately ZAR15 000/kg (in 2017 terms).
The integration of the Rustenburg PGM operations exceeded expectations. The Rustenburg operations have consistently delivered solid production and improved financial results, with approximately ZAR1 billion in cost savings and synergies realised in the first year of incorporation, well ahead of initial expectations of ZAR800 million over three to four years.
The acquisition of Stillwater was fortuitously timed with the palladium price rising by over 60% since the acquisition was concluded. Subsequent to shareholders approving the acquisition in May 2017, the $2.65 billion Stillwater Bridge Facility was successfully refinanced by an oversubscribed $1 billion rights issue, maiden $1.05 billion corporate bonds and through a low cost, $450 million convertible instrument. The integration of the US PGM operations has also proceeded smoothly, with steady operating results and the critical Blitz project commissioned three months ahead of plan.
“The solid results from both operating regions, reinforces the appropriateness of the decision made to restructure the business on a regional basis, in order to ensure role clarity and sustainable operational delivery. The SA PGM operations contributed ZAR1.6 billion ($120 million) (18%) to Group adjusted EBITDA in the first full year of incorporation, on the back of effective cost management assisted by improving PGM prices. This is a remarkable result from assets which, before being part of the Sibanye-Stillwater Group, had been delivering significant and sustained losses for many years. Moreover, the recently acquired US PGM operations contributed ZAR2.1 billion ($161 million) (24%) to Group adjusted EBITDA during the eight months since acquisition. Given the recent strength in the rand, which continues to impact on margins of all SA mining operations, this has provided welcome diversification and supports the impeccable timing of the acquisition,” commented Neal Froneman, Sibanye Stillwater Chief Executive Officer.
On 14 December 2017, an all-share offer to acquire 100% of Lonmin was announced. The transaction, if successful, will complete the fourth step in Sibanye-Stillwater’s PGM strategy, giving access to a world class processing business, enabling it to become a fully integrated PGM producer in South Africa, with long-term growth potential through Lonmin’s advanced projects.
This logical transaction will enable the realisation of significant synergies, which will bring greater stability to both the Lonmin and Sibanye-Stillwater’s SA PGM operations.
In addition to the PGM transactions during the year, the proposed transfer of certain gold surface assets on the West Rand for a 38% shareholding in DRDGOLD Limited (DRDGOLD) and an option to acquire a majority stake, was announced on 22 November 2017. Again, this logical transaction will deliver immediate value from the West Rand Tailings Retreatment Project (WRTRP) while also providing future optionality without the need to incur significant capital investment.
Sibanye-Stillwater maintains its prudent approach to capital management, with balance sheet deleveraging and preservation of long term financial flexibility remaining key priorities.
Net-debt (excluding the Burnstone Debt and including the $450 million convertible derivative instrument) at 31 December 2017 was ZAR23.176 million ($1,875 million).
There was a 7% reduction in net debt to adjusted EBITDA to 2.6x, compared with 2.7x at 30 June 2017.
The Group also has sufficient liquidity with committed unutilised debt facilities of ZAR3.653 million ($296 million) at 31 December 2017.
In order to maintain adequate liquidity, the refinancing and upsizing of the $350 million Revolving Credit Facility (RCF), maturing on 23 August 2018, has been launched. A term sheet has been executed with the two Bank coordinators who have each received credit approval for a $100 million participation. We anticipate closing of the syndication during March 2018.
The terms and conditions largely mirror the current US dollar RCF which is $92 million drawn as at 31 December 2017. This will increase our available facilities by about $250 million.
Consistent with the previous financial period, the Board has resolved to issue 4 capitalisation shares per 100 held, to shareholders, maintaining Sibanye-Stillwater’s commitment to deliver industry leading returns to shareholders.
The political environment in South Africa has recently undergone substantial change. While structural changes are yet to be seen, general sentiment around the country’s prospects for economic stability and growth is more positive. This has notably reflected in the strength of the local currency, which has appreciated by 6% against the dollar in 2018 to date and, remarkably, by 18% since the beginning of 2017.
At the same time though, dollar denominated precious metal prices have increased, and while the rand will continue to impact on industry margins, overall spot prices are generally higher than at the same time in 2017. While the political and regulatory outlook appears more positive, and suggests upside for the beleaguered mining industry, we continue to adopt a cautious and measured approach.
“Sibanye-Stillwater has undergone significant change and done so under challenging circumstances at what we believe to have been a low point in the precious metals commodity price cycle. Recent strength in precious metal prices, supported by improving market fundamentals, underpins our view. We are convinced that Sibanye-Stillwater offers fundamental value and is strategically positioned to benefit from any upside in precious metal prices,” said Froneman.