- Valuations are ‘challenging’ because of rising share prices
- Asset would need to produce at least 200,000 ounces a year
Sibanye Gold Ltd., the top producer of the metal from South African mines, wants to buy a gold-producing asset this year to add to platinum purchases. Surging share prices make a deal in its home country unlikely.
The asset would have to make a “material difference” to Sibanye’s current output, with production of at least 200,000 ounces of gold a year, Chief Executive Officer Neal Froneman said in an interview after the company’s annual general meeting Tuesday. Any acquisition would have to be generating cash to help pay dividends, he said.
Froneman, 56, is on the lookout for purchases after turning around three aging gold mines in South Africa’s Witwatersrand Basin following Sibanye’s spinoff from Gold Fields Ltd. in 2013. Last year, Sibanye agreed on two platinum acquisitions -- Anglo American Platinum Ltd.’s Rustenburg operations and Aquarius Platinum Ltd., both northwest of Johannesburg.
“We remain optimistic about doing a gold transaction before the year-end,” Froneman said. “But gold valuations are proving to be challenging from an acquisition point of view. There’s been a substantial re-rating in the equity prices of gold companies.”
Gold’s 15 percent gain this year has fueled an 84 percent surge in a gauge of 14 miners of the metal tracked by Bloomberg, making acquisitions more expensive. That’s especially true in South Africa, where the falling rand has cut costs and widened profit margins. As a result, a purchase of a gold asset in the country is “unlikely,” Froneman said.
“We’ve got to buy producing assets with cash flow, otherwise it doesn’t underpin the dividend thesis,” he said.
Sibanye fell a third day, dropping 2.4 percent to 45.03 rand by 10:46 a.m. in Johannesburg. The FTSE/JSE Africa Gold Mining Index sank 4.2 percent as the precious metal extended a losing streak to six days on expectations the Federal Reserve will raise interest rates in June or July. Higher rates are bad for gold, which pays no interest.
While Sibanye’s planned platinum acquisitions are only breaking even at spot prices, the company plans to cut costs by reducing overheads at the mines, which are next to each other. That should save about an annual 800 million rand ($51 million) within three years, Froneman said. That’s equivalent to about 80 percent of the company’s current dividend.