Sibanye Eyes Gold, Platinum Purchases in 2016 as Stock Soars

  • CEO Neal Froneman targets low-cost assets to boost dividend
  • Company also looking at entering base metals, bulk commodities

Sibanye Gold Ltd., the biggest producer of the metal from South African mines, wants to buy gold and platinum assets this year as it seeks to capitalize on its rising earnings and share price, Chief Executive Officer Neal Froneman said.

“We want to consolidate our position in the gold sector and the platinum sector,” he said in an interview at Bloomberg’s offices in Johannesburg on Thursday. “This year we could do a material gold and platinum transaction. That’s going to be our aim.”

The platinum purchase will likely be in South Africa, home to more than 70 percent of the world’s reserves of the metal, while the company will look at buying gold assets outside its home country but in sub-Saharan Africa, Froneman, 55, said. Sibanye could borrow as much as 8 billion rand ($514 million) for the acquisitions without raising its net debt above its 2015 earnings, he said.

Both purchases would be in addition to the planned takeovers of Aquarius Platinum Ltd. and three of Anglo American Platinum Ltd.’s Rustenburg mines, which are due to be completed this year, Froneman said.

Sibanye closed at a record high of 54.60 rand on Thursday after paying a dividend that beat analysts’ expectations and forecasting strong cash flows for 2016. Like other South African gold producers, it has benefited from a weak local currency, down 26 percent against the dollar in the last 12 months, because it receives revenue in dollars and its costs are in rand. Gold producers elsewhere in Africa have costs in dollars and this may make them targets, he said.

At current spot gold prices, Sibanye would make 10 billion rand of free cash flow in 2016, or about 20 percent of its market value, according to Richard Hart, a Johannesburg-based analyst at Arqaam Capital.

That cash flow, a share price that’s up 136 percent this year, and a low net debt equivalent to 0.21 times earnings before interest, tax and depreciation puts the company in a “fortunate position” to make acquisitions, Froneman said. A higher share price provides “currency” to buy dollar-based assets outside of South Africa, he said.

Anglo American Plc is considering selling mines in South Africa including coal and iron ore operations.

“There are packages of assets that have coal and base metals in them, maybe even iron ore, who knows,” Froneman said. “Anglo has put a lot of things up for sale,” he said.

Sibanye will look at Anglo’s coal assets in South Africa but Kumba Iron Ore Ltd., which Anglo is seeking to spin off, may be too expensive at current prices, Froneman said.

“We’re open to all those type of assets but I’m not so sure it’s a cheap entry point at this stage,” he said. The “iron ore price is terrible and I’m not sure it’s reached the bottom.”

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