The fantastic Mr Froneman

2014-10-06 08:00

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Neal Froneman’s office at Sibanye Gold’s relatively modest headquarters in the mining town of Westonaria, western Gauteng, is dominated by a painting of a Formula GTI car, which he once drove competitively. He’s a bit old for it now, but he still likes to be behind the wheel of fast cars, boats, helicopters and planes.

His appetite for risk is not restricted to his private life. In the corporate world, depending on how much you like him, his penchant for risk would likely be read as “entrepreneurship” by his fans and “recklessness” by his detractors.

The Sibanye CEO has had a varied career, with some successes and some failures. Some call him Mr Fixit, while others are not as generous.

But few would dispute his ability to take the road less travelled. Sibanye is an example. He took over the bulk of Gold Fields’ South African assets and made a success of it. It is the lowest-cost producer and the highest payer of dividends in the gold sector, and is now well placed to play a pivotal role in consolidation and restructuring in the troubled gold and platinum sectors.

It is completely focused on South Africa and on producing dividends for shareholders. Its share price growth in the past year has been such that it is now worth almost double Harmony Gold, where Froneman once worked.

His record at Aflease, Uranium One and Gold One International has been mixed, with Uranium One being the least successful of his ventures.

Froneman says he is entrepreneurial and “what some critics don’t understand is you can have different strategies at different times”.

According to him, market dynamics were different before 2008.

“There were opportunities in uranium, where there was a short window that required taking significant risk, and we were mostly successful. It was a strategy at a point in time,” he says.

Since 2008, shareholders want returns, and this is where his focus is now.

With this in mind, there is some nervousness around Sibanye. When Froneman indicated a few months ago that Sibanye was looking at platinum acquisitions, there was some concern he might be running out of steam at Sibanye and needed acquisitions to keep growing. At the time, Froneman said this was simply not true.

Since then, his interest in platinum has thawed.

Anglo was first to say it was looking at selling its Rustenburg mines after the strike. But the sale process has been slow.

“We can still see opportunities – smart opportunities that will realise synergies across commodities. But it is such a slow process, we are losing interest fast. Those companies that promoted the sale of assets are taking so long, it is creating uncertainty for our shareholders – there needs to be movement,” he says.

He reckons the platinum sector expects that price changes in the short term will be its saviour. His view is that prices will take longer to improve and that in the interim, there is an urgent need for the industry to restructure.

Sibanye had identified five opportunities that are now whittled down to two. “Now all we are doing is maintaining a watching brief,” says Froneman.

Something that may be higher up on the agenda is consolidation in the gold sector – where Sibanye is perfectly placed. With the gold price dropping, and AngloGold’s failed capital-raising and demerger plans, gold acquisition opportunities could be plentiful.

Froneman says gold companies improved their cost structures and all-in costs. Any further improvements will be marginal, but all incur significant corporate and regional overheads amounting, according to his calculations, to R1?billion a year.

“That is where there can be a quantum leap in terms of being competitive in the gold sector. There are four major companies and I think there is only room for two or three,” he says.

AngloGold, which is rumoured to be looking at the sale of South African assets as a plan B, has quality assets that would fit well with Sibanye. Similarly with Harmony, which looks vulnerable given its costs and the declining gold price.

Froneman has recently returned from a “no-deal road show” in the US, where he found it as difficult as ever to convince potential investors to put money into the South African mining sector.

They remain reluctant on two key issues, according to Froneman: labour relations and lack

of clarity on the regulatory environment.

“This is sad for me and confirmed that destinations in areas I know are less than SA – like Zimbabwe and Congo – are perceived to be better investment destinations.

“Despite Sibanye being the highest dividend yield gold company in the world – more than double the best US gold company – we are not getting the recognition,” he says.

But Asian investors remain fairly positive and it is understood they would be interested in funding any acquisition Sibanye may conclude.

Despite looming retrenchments at its Cooke operations, Sibanye is trying to improve labour relations and the lives of its workers. It is helping many of them with debt issues and looking at housing initiatives.

Membership of the Association of Mineworkers and Construction Union (Amcu) is rising on Sibanye mines. Froneman says he sees little difference between Amcu and its rival, the National Union of Mineworkers, saying they both focus on “membership rather than members’ interests”.

What irks him most is “the complete lack of willingness of leaders to deal with the unstable labour environment”.

Small changes to the Labour Relations Act, like secret ballots, would go a long way to bring stability to the sector, he says.

“The relationship between government and labour results in spinning wheels, and we are going nowhere.”

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