Sibanye Gold Won’t Pay Dividend For First Time as It Posts LossBy
Sibanye Gold posts first-half loss of $363.8 million
Miner’s debt surged after buying U.S.-based Stillwater
Sibanye Gold Ltd. canceled its dividend after debt ballooned while it swung to a loss, marking a series of firsts for the South African producer that’s been one of the world’s top performers in its four-year history.
Sibanye will focus on cutting borrowings after its $2.2 billion purchase of U.S. platinum-group metals producer Stillwater Mining Co. earlier this year, making the payment of a cash dividend “inappropriate,” the Johannesburg-based company said in a statement Wednesday.
The miner, the biggest producer of South African gold, has also contended with a stronger rand this year, which eats into earnings, and charges related to plans to close some unprofitable gold mines in South Africa.
Sibanye has been pursuing growth and adding assets while rivals focused on debt reduction and cutting costs as gold declined in four of the past five years. Paying a dividend has been a core part of Sibanye’s strategy since it was spun off from Gold Fields Ltd. in 2013 to hold a group of South African mines that, while high-cost and aging, are proven cash generators.
The company reported a first-half net loss of $363.8 million, which includes charges related to closure costs of some South Africa assets and a provision for settling a lung-disease class-action lawsuit.
Sibanye, which is the second-best performing member of a Bloomberg Intelligence index of global producers over the past four years, still expects to generate positive cash flow in 2017, it said Wednesday. In the absence of a dividend, it plans to give investors two new shares for every 100 held.
“We’re really conserving our cash to deleverage the company,” Chief Executive Officer Neal Froneman said in an interview. “You can call it a blip.”
Sibanye dropped as much as 7.6 percent and closed 4.9 percent lower in Johannesburg. The company has gained 24 percent this year as gold strengthened, and has more than tripled in the past four years.
With production at its core South African mines expected to fall by half by 2030 as reserves are depleted, Froneman has led a move into platinum, first by buying mines from Anglo American Platinum Ltd. in South Africa, and later the acquisition of Stillwater in the U.S.
Most of Sibanye’s debt has been incurred in these acquisitions. The company had net borrowings of $1.7 billion at June 30, up from almost nothing four years ago. Net debt is currently 2.6 times earnings and will increase toward 3 times next year, Sibanye said. Its goal is to reduce net debt to one times earnings by about 2021.
Given the balance-sheet stress, Sibanye will be cautious in making further acquisitions and won’t pursue deals that would increase debt levels, Froneman said. Purchases in South Africa are highly unlikely due to the uncertainty caused by the government’s Mining Charter, he said.
“We can’t take cash and buy South African assets,” Froneman said. “You don’t know what the cost of doing business is. You can’t defend doing that from a commercial point of view.”