Sibanye Declines as Safety Stoppages Hurt Gold Production

  • Shares down as miner loses about 45,000 ounces in first half
  • Higher gold price, weak rand cause profit to rise sixfold

Sibanye Gold Ltd. fell in Johannesburg trading as safety stoppages meant the biggest miner of South African gold produced less of the precious metal than it could have in the first half of the year.

“If everything had gone right, we know that’s highly unlikely, there’s 1.4 tons (45,000 ounces) of additional gold that we could have produced had we not had the disruptions,” Chief Executive Officer Neal Froneman said in an interview. “That would have resulted in much better revenue and costs.”

Sibanye’s headline earnings rose more than sixfold to 1.1 billion rand ($78 million) in the six months to June 30, the Westonaria, South Africa-based company said in a statement Thursday. Sibanye increased its first-half dividend to 0.85 rand a share, or 36 percent of normalized profit, compared with 0.10 rand a year ago.

“The financial results look very good and probably are very good but I know we did not achieve our potential,” Froneman said in Johannesburg.

Still, the stock dropped as much as 12 percent, the most on a closing basis since the company was spun out of Gold Fields Ltd. in 2013, to 57.05 rand, and was 3.2 percent lower at 62.80 rand by 4:20 p.m. in Johannesburg. It has more than doubled this year as higher bullion prices and a weak rand boosted margins.

Earnings Expectations

“The shares were building in too-high expectations for earnings,” said Wayne McCurrie who helps manage 40 billion rand at Momentum Wealth (Pty) Ltd. in South Africa. “You never get 100 percent performance in South Africa. There are always safety stoppages or electricity supply problems or some kind of disruption.”

Sibanye had eight fatalities and more than 70 safety stoppages in the first half of the year, almost one every three days. Froneman said the company is redoubling efforts to improve safety.

Even with stoppages, production increased 5 percent to 746,800 ounces in the first half, the company said. All-in sustaining costs increased 3 percent in local-currency terms to 448,922 rand an ounce. In dollars, they dropped 20 percent to $908 an ounce.

The company received the twin benefits of a gold price that climbed 13 percent in the year to June 30 while the South African rand weakened 17 percent.

Platinum Issues

But platinum prices, which touched a seven-year low in January, have worked against the mines that Sibanye bought from Aquarius Platinum Ltd. and is purchasing from Anglo American Platinum Ltd. Some deep-level underground operations are “far off plan,” Jean Nel, head of Sibanye’ platinum division, said in a presentation to analysts.

“In this price environment a radical recovery plan is required,” Froneman said. “If there’s no realistic plan in these assets making less losses all you can do is put them on care and maintenance until the price recovers.”

Sibanye is working on plans to make the operations profitable and will accelerate these once the Anglo American transaction is completed later this year,” he said.

Sibanye maintained its forecast for full-year gold production at 1.6 million ounces even as it reviews the future of its Cooke 4 shaft. It expects all-in sustaining costs of about $910 an ounce, and kept its capital-expenditure prediction at 3.9 billion rand. Its platinum mines, which produced a record 92,773 ounces of platinum group metals in the second quarter, are seen producing 260,000 ounces in the nine months to Dec. 31.

Froneman has stated he’s keen to use the company’s rising cash reserves and share price to make acquisitions that would help underpin the dividend in the long term. However, the rebound in precious metals is making it more difficult to buy assets cheaply, he said.

“Value acquisition opportunities which were more prevalent at the beginning of the year are less obvious currently,” Froneman said in the statement. “Sibanye will continue to evaluate opportunities where value creation can be derived through the realization of cost and operational synergies.”

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