Johannesburg - Crippling labour strikes, geriatric mines and precious metals prices scraping along at their lowest levels in half a decade don’t faze Neal Froneman, head of the world’s best-performing gold producer over the past two years.
Froneman, known in the industry as Mr Fixit, defied investors’ skepticism to build up Sibanye Gold [JSE:SGL] from a spinoff of three old, strike-prone South African mines owned by Gold Fields [JSE:GFI].
Now he wants to do it again in platinum and maybe even coal.
"We think that we’re very well positioned to move into other difficult social environments within South Africa and make a meaningful difference," Froneman, Sibanye’s chief executive officer, said in a Bloomberg Television interview. "We have some experience and we understand these risks very well."
While other investors flee the nation, Froneman, 55, reckons he can overcome its fractious labour relations, high costs and low productivity to buy assets cheaply, turn them around and make money. With that aim, Sibanye announced on Wednesday that it’s paying at least R4.5bn for three Anglo American Platinum (Amplats) [JSE:AMP] mines that were paralysed by a record five-month strike last year.
"The market, on the unbundling of those Gold Fields assets, had a fairly negative view," Froneman said. The latest deal "is not too dissimilar."
The CEO will get an easier ride this time as his standing has rocketed in the past two years, in tandem with the 74% jump in Sibanye’s share price. That’s the best performance by far among the 15 members of the Bloomberg Intelligence Senior Gold Index. The index, including Barrick Gold and Gold Fields, is down 53% in the period as gold slumped 20%.
Sibanye rose 5.4% in Johannesburg after Wednesday’s announcement, while Amplats gained 3%.
The transaction, which gives Amplats 35% of the cash flow from the mines for the first six years after the acquisition, won’t raise Sibanye’s net debt beyond its earnings or threaten its dividend, Froneman said.
"This is less about trying to build a conglomerate and more about chasing value," said Richard Hart, a Johannesburg-based analyst at Arqaam Capital. Platinum group metals "prices are at or near their bottom. There’s probably no better time to acquire assets," Hart said.
The same logic applies with the gold industry in South Africa, Froneman’s next target, where data compiled by Bloomberg shows a third of output and half of mines lose money.
“Cost reduction is going to come from consolidation,” he said. "Of course, as Sibanye we’d like to play a role in that."
The company may also seek to buy a coal mine and produce its own electricity, Froneman said. That would reduce reliance on Eskom.
Mr Fixit’s career hasn’t been without its own hitches.
After earning the nickname by turning around shafts at Harmony Gold Mining in the 1990s, Froneman became CEO of Aflease Gold and spun out SXR Uranium One in 2005 in a merger with a Canadian company. Three years later, he resigned after prices collapsed and production stalled.
Success returned with Sibanye, set up in November 2012 with the spin-off of three mines, two of which had suffered a six-week strike just a month before.
Declines in platinum prices, to a six-year low last month, may still thwart Sibanye’s latest deal, said Hurbey Geldenhuys, a mining analyst at Vunani Securities. Including capital expenditure, costs at the mines in the Rustenburg area will be about R12 000 an ounce, against a spot price of R11 500 for the combination of platinum-group metals that they produce.
“At current prices, even if they succeed to cut costs by 15% - and they’re good at doing that - those mines will barely break,” Geldenhuys said.
It’s not a risk that’s bothering Froneman, who says the mines won’t affect shareholder returns even if metals prices don’t increase for three years.
"I don’t think it’s going to change in one month or six months," he said. "But within a year to two years, it’s going to change."