Gold’s ‘Mr. Fixit’ Applies Low-Cost Strategy to Platinum

Photographer: Norm Betts/Bloomberg

Sibanye Gold Ltd. Chief Executive Officer Neal Froneman. Close

Sibanye Gold Ltd. Chief Executive Officer Neal Froneman.

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Photographer: Norm Betts/Bloomberg

Sibanye Gold Ltd. Chief Executive Officer Neal Froneman.

Neal Froneman, widely known as the Mr. Fixit of South African mining, transformed a group of unwanted, underachieving gold assets into the world’s best-performing producer. Now he wants to apply the same strategy to platinum.

The world’s three biggest suppliers are considering closing or selling platinum mines in South Africa after a five-month strike decimated output and left some sites potentially unsafe.

Froneman, 54, chief executive officer of Sibanye Gold Ltd. (SGL), said the inequality, violence, high costs and low productivity that plague South Africa’s mining industry are creating an opportunity to buy platinum assets on the cheap and replicate the turnaround strategy that made his company the world’s lowest-cost major gold producer.

“We have five targets that we’re actively working on,” Froneman said in an interview. “We’re one of the very few companies that has the operating credibility to do this and the capacity to do it.” He wouldn’t identify any of the potential acquisitions.

Froneman is looking at mines valued by their owners at about 5 billion rand ($467 million) to 10 billion rand. He doesn’t plan to pay that much.

“That’s what they might be valued at, but why on earth would we pay full value?” Froneman said.

Reviewing Operations

South Africa’s longest mining strike, which ended June 24, has prompted Anglo American Platinum Ltd. (AMS), Impala Platinum Holdings Ltd. (IMP) and Lonmin Plc (LMI) to review how they operate and whether they should sell non-core assets.

Anglo American Platinum, 77 percent owned by London-based Anglo American Plc (AAL), may shut or offload its Rustenburg and Union mines, which produce about a third of its total platinum, CEO Chris Griffith said in March. The world’s top producer may sell assets valued at $1.4 billion next year, Deutsche Bank AG said in a note last month.

Impala and Lonmin, the world’s second- and third-largest producers, plan to review their operations once they’re up and running, which may take about six months, spokesmen said.

The producers must rehire and retrain workers, check the physical infrastructure of the mines, remove water and shore up their structural integrity, according to Ben Davis, a London-based analyst at Liberum Capital Ltd. Those extra costs may be too much trouble, especially since some parts of the mines aren’t making money.

Repeat Strategy

For Froneman, this presents an chance to repeat in platinum the turnaround strategy he’s already used for gold.

Sibanye was created in February 2013 when Gold Fields Ltd. (GFI), then the No. 4 producer, decided to spin off three old, low-growth South African mines that had been plagued by labor unrest. Gold Fields kept higher-growth assets in Peru, Ghana and Australia.

Froneman reduced costs at the three mines by about 15 percent while raising output and generating cash for dividends. His strategy is based on boosting morale while cutting jobs. The company has a series of programs aimed at improving workers’ living conditions such as home-building, personal-debt reduction and productivity-linked bonus plans.

“Mining is a people’s game,” he said in an interview at his office in the heart of South Africa’s Witwatersrand gold reef, 60 kilometers (37 miles) west of Johannesburg. He sounds more like a human resources manager than a mining engineer. “If you don’t win the hearts and minds of your people you will have all sorts of industrial-relations issues.”

Mass Layoff

Froneman helped reach a two-year wage agreement for workers after a two-day strike in September and has maintained peace at his operations even after cutting 15 percent of the workforce, about 6,000 people. Using attrition, bringing previously outsourced work in-house and voluntary severance, he only made 100 forced job cuts.

By contrast, Anglo American Platinum tried to eliminate 14,000 workers in a mass layoff last year. It ended up trimming only half that after outcry from unions and the government.

“Neal Froneman is very aggressive,” said Frans Baleni, general secretary of the NUM, which negotiated the gold-wage settlement last year. “He will bulldoze things and focus on the balance sheet.”

Sibanye’s shares have more than doubled this year, compared with a 18 percent gain for the Bloomberg Industry Senior Gold Index, and the company has become the world’s lowest-cost major producer, according to Barclays Plc. (BARC) Gold Fields has slumped 52 percent since spinning off Sibanye 17 months ago, while the the price of bullion has dropped 19 percent.

Mr. Fixit

Froneman earned the nickname Mr. Fixit by turning around individual shafts at Harmony Gold Mining Co. in the late 1990s. He later became CEO of Aflease Gold Ltd., and spun out SXR Uranium One Inc. in 2005 in a merger with a Canadian company. Three years later, he resigned after prices collapsed and production stalled.

He got back into gold by merging Aflease with an Australian company in 2009 to create Gold One International Ltd., which was sold to a group of Chinese investors in 2013. That left him available when Gold Fields decided to spin off some assets, and he was named Sibanye’s CEO in 2012.

Sibanye is “better placed than most” mining companies to deal with labor issues, and would “score points” from unions and the government for being 100 percent South Africa-focused, rather than part of a corporation listed in London, Daniel Sacks, who helps manage $120 billion at Investec Asset Management in Cape Town, including Sibanye shares, said by phone on July 2.

Acquisition Opportunity

“There could be an opportunity” to acquire undervalued assets, he said.

The concern for investors is that moving into platinum may be more of a challenge than Froneman expects.

“The worry is that they’ll mess with a winning formula in a high-risk area,” said John Moorhead, who helps manage $6.5 billion at Pictet & Cie. in London and sold his Sibanye shares this year. “They’ve been successful, so why go and risk it all in another commodity?”

While Froneman has successfully handled labor issues at his gold mines, he hasn’t faced the Association of Mineworkers and Construction Union. The majority labor group in platinum has higher wage demands than the National Union of Mineworkers, which speaks for the majority of gold employees.

Wage Increases

The five-month platinum strike ended with producers agreeing to basic wage increases as high as 20 percent. The AMCU had sought to double salaries, redressing what it claimed were generations of low pay. Before the walkout, the lowest-paid workers earned $470 a month.

Even with those wage gains and the more-vocal platinum union, South Africa’s Mr. Fixit stands a shot at pulling off another turnaround play, according to mining executives. Froneman’s skill is “harvesting” mature mining assets with existing infrastructure, Mark Bristow, CEO of another African bullion company Randgold Resources Ltd. (RRS), said at a media lunch July 2. “In the environment here he could make a go of platinum.”

To contact the reporter on this story: Kevin Crowley in Johannesburg at kcrowley1@bloomberg.net

To contact the editors responsible for this story: John Viljoen at jviljoen@bloomberg.net Ana Monteiro, Will Wade

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