Sibanye braces for fall in production as it counts the cost of lockdown

Sibanye-Stillwater, the world's biggest platinum producer, said on Wednesday it had begun phasing in mining activity following the announcement of adjusted lockdown measures by government.

However, it warned that the shutdown period could negatively impact the production outlook for 2020, as well as its ability to comply with debt covenants and meet liquidity requirements.

In an annual report released on Wednesday, Sibanye listed a number of uncertainties associated with the coronavirus pandemic that could have an impact on the company going forward. These include turmoil in the global economy and the possible adverse impact in the short- to medium term on the demand for platinum group medals and gold, commodity prices and rand-dollar exchange rates.

The nationwide lockdown, which has hit miners hard, is expected to have a severe impact on South Africa's production of platinum group metals overall – and SA produces some 70% of the world's platinum supply. But according to Sibanye, it's not only SA it's concerned about.

Other challenges include the possibility of potential lockdown at its US operations "overlapping significantly" with the lockdown at the South African operations, and delayed return to normal production by suppliers and customers and the economies in which they operate as well as the health of employees after the extended lockdown.

The combination of the Covid-19 impact and other factors may require the company to institute damage control measures, namely to adjust mine plans, reduce capital expenditure and/ or sell assets, it said. Another possibility could be, with lender approval, to request covenant amendments or restructure facilities, the company said.

Sibanye has in recent years racked up debt to fund its acquisition trail. Its gross debt was approximately R26.6 billion in 2019, compared with approximately R23.8 billion in 2018, according to the report.

"While each of the scenarios result in a net utilisation of available liquidity, none of the scenarios result in an overall depletion of available liquidity," the report read.

Analysts previously forecast that mining companies would be severely impacted by the five-week lockdown, imposed by government at the end of March to limit the spread of the coronavirus.

Companies were initially instructed to put operations under care and maintenance, with essential operations such as smelters allowed to operate at 50% capacity.

The Minerals Council of South Africa, which represents the majority of the industry, said while it supports government's 21-day lockdown, the impact on the industry would be "significant".

Sibanye, for its part, said it had begun to institute measures to prepare for workers' return to production following the announcement that operations could be phased in.

The company said initial readiness of the mines included ensuring appropriate ventilation, starting of belts, flushing of water pipes and training of employees to ensure a safe return to production. 

Safety as mines resume activity has been a sticking point among some mine workers and their representatives, who have voiced concerns that mines are high-risk environments for the spread of the coronavirus as it is not always possible for employees to work at a safe distance from each other or in well-ventilated, sanitary areas.

Companies including Impala Platinum and AngloGold Ashanti have said they are putting processes in place to increase worker safety, Fin24 previously reported. But not all employees are convinced this will be enough to mitigate the risk.

Since its formation 2012, Sibanye has grown from a small gold miner to a global giant through a series of acquisitions in the sector. In 2017, it diversified into platinum group metals (PMG) following a merger with US producer, Stillwater, to become Sibanye-Stillwater.  

Sibanye shares closed 9.5% up on the JSE at R32.30.

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