Gold Turnaround King Follows Biggest Deal With Plan for More

The mastermind behind the biggest overseas acquisition by a South African mining company for 15 years promises more to come.

“There must be more expansion,” Sibanye Gold Ltd. Chief Executive Officer Neal Froneman, 56, said in an interview. “You can never get complacent and sit on your hands.”

That’s after Froneman agreed to pay $2.2 billion for Montana’s Stillwater Mining Co., and what he calls the world’s highest-grade platinum group metals deposit. It’s a step up for Sibanye, created just three years ago as a spinoff of Gold Fields Ltd.’s South African gold mines. The miner previously agreed smaller deals to buy Aquarius Platinum Ltd. and three Anglo American Platinum Ltd. operations in its home country.

If approved by shareholders, the latest deal will be funded with $2.7 billion of borrowings, compared with a market value for Sibanye on Friday of about $1.6 billion, and drive its debt-to-earnings ratio up fourfold in the near term before it falls back later.

“They’re adding a lot of debt, which could become a challenge if platinum-group metals prices don’t improve or get worse,” said Arnold van Graan, a Johannesburg-based analyst at Nedbank Capital.

Stock Sinks

The company’s stock sank 15 percent by the close on Friday after announcing the transaction, also financed through a share sale of at least $750 million. Sibanye declined 0.6 percent as of 3:40 p.m. Monday in Johannesburg.

“Deals run in his blood,” said Bruce Williamson, a Johannesburg-based fund manager at Integral Asset Management (Pty) Ltd. who’s previously invested in the CEO’s companies. “He’s moved away from smaller acquisitions now. Stillwater in the U.S. is the big league.”

Next on the agenda could be adding gold mines in South Africa. While the country has declining reserves and frequent stoppages due to safety problems and labor strikes, it’s Froneman’s home turf and he has previously said money can be made from consolidating mines.

“We’d like to grow our gold business more; being number 10 in the world is not good enough,” he said, adding that the company needs to take “another step” in South Africa. “But we’ll only do it if it can create value.”

Dividend Hopes

AngloGold Ashanti Ltd. and Harmony Gold Mining Co. are the two largest miners of the precious metal in South Africa aside from Sibanye. AngloGold attempted to spin off its South African operations in 2014 but now says they’re not for sale. Harmony, which runs mines near the end of their lives, is looking to expand abroad.

Froneman said he’ll keep a watch out for more opportunities in platinum-group metals, of which South Africa is the world’s largest producer.

Not all of Froneman’s deals have been a success. As CEO of Aflease Gold Ltd. in 2005, he spun off SXR Uranium One Inc. in a merger with a Canadian company, but resigned three years later after prices collapsed and production stalled.

Known as Mr. Fixit for his turnaround expertise in South Africa’s strike-prone, aging and dangerous gold mines, the head of Sibanye says his goal in the longer term is to be able to pay an “industry-leading” dividend to shareholders.

Stillwater gives Sibanye greater exposure to palladium and platinum, cuts reliance on South Africa and extends the life of its reserves. Gold currently funds Sibanye’s dividends, but production will fall by more than half by 2030 as South African mines are depleted, and ore becomes deeper and costlier to mine. The U.S. deal underpins long-term dividends, Froneman said.

"We know that Neal is always looking to add assets and that has always been part of the Sibanye story," van Graan said.