Sibanye Gold weighs up move into platinum before end of year

Sibanye Gold, the biggest producer of South African gold, is pushing ahead with plans to move into the country’s platinum sector before the end of the year, with Anglo American Platinum’s mines likely acquisition targets.

The world’s top three platinum producers – Amplats, Impala and Lonmin – are reeling from a debilitating five-month strike that ended last week, with predictions that the industrial action will accelerate the closure of marginal shafts. The strike, which was the longest and costliest in the history of South African mining, capped two years of labour unrest in a sector that has been battling spiralling costs and subdued prices.

But platinum’s woes have not dented Sibanye’s appetite to acquire platinum assets, says Neal Froneman, the company’s chief executive.

“We have done a lot of analysis and there’s a couple of shortlisted opportunities that we continue to work on. I would be disappointed if we haven’t done something material in platinum by the end of the year,” Mr Froneman says. “We are positive and bullish about platinum as a commodity and the supply and demand fundamentals.”

He declined to be specific about which assets Sibanye is interested in, saying only the “targets are obvious” and “there are three targets of particular interest”.

The most likely targets are mines operated by Amplats, which announced its intention to sell its Union mine as part of a review of its business in early 2013.

Its parent, Anglo American, has also strongly hinted that it would like to exit its struggling operations in Rustenburg, which were hit by the strike and have already gone through a restructuring that saw the closure of two shafts and the shedding of more than 5,000 jobs.

The company has consistently described the mines as being lossmaking or operating on thin margins, while Rustenburg and nearby Marikana have been at the heart of the worker unrest.

But Mr Froneman sees similarities between platinum mines and the mature gold mines he has turned round since Sibanye was formed in late 2012. The company was established after Gold Fields spun off its main South African operations – Kloof, Driefontein and Beatrix mines.

“There are good quality assets in the platinum sector, including Rustenburg,” Mr Froneman adds.

When Sibanye was created the move was seen as Gold Fields ditching old shafts operating on tight margins with short lifespans. But Sibanye has significantly reduced production costs, extended the shafts’ lives to about 20 years and raised their output from around 1m ounces per year to 1.45m ounces, Mr Froneman says.

The company also boosted its portfolio with the acquisition of two smaller mines – Cooke and Wits Gold – while its net debt has been reduced from about R4bn ($377m) to R750m. And Sibanye’s share price has soared by 277 per cent over the past 12 months, while Gold Fields share’s have fallen 26 per cent over the same period.

There are strong similarities in the production of gold and platinum as both involve deep-level, labour intensive mining.

South Africa produced more than two-thirds of the world’s gold at its peak in the 1970s, but the sector has been in decline for years as shafts have matured. However, it remains the planet’s key producer of platinum, with the country home to about 80 per cent of the proven reserves.

Mr Froneman is confident that gold will not suffer the same level of labour unrest as platinum. The union that called the strike – the Association of Mineworkers and Construction Union – is a minority union in gold, unlike in platinum, where it dominates. But it does have majority representation at some shafts, including Sibanye’s Driefontein mine.

Mr Froneman believes workers will come to understand that they lost out during the five-month strike. He adds that the industry has been focusing on addressing the social and economic conditions that were blamed for fuelling worker anger during a wave of wildcat strikes that hit platinum and gold in 2012.

As an example, Sibanye is working on pilot programmes to alter its shift system to enable migrant mineworkers to take more time off to visit their rural homes, while also increasing productivity.

“Our view is if we don’t win the hearts and minds of our employees . . . this long term sustainability of our business is quite questionable,” he said. “And we are serious about not going into the next round of wage negotiations without a lot of this [reforms] in place already.”

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