Precious metals mining company Sibanye-Stillwater has swung back to profit in the first half of its 2020 financial year, thanks to rising commodity prices and gains attributable to its acquisition of Lonmin operations.
The mining company, SA’s largest individual producer of gold, published its results for the six months ended in December 2019 on Wednesday morning, which showed a R603.5 million profit for the period - a more than R750 million comeback from the R170.7 million loss reported in December 2018.
Sibanye achieved this following millions in losses in the previous year, including during a protracted wage deadlock with the Association of Mineworkers and Construction Union (AMCU).
It also restructured former Lonmin’s Marikana operations, but that process was concluded without industrial action.
On Wednesday, Sibanye said seeing how far it has come in these interim results, it is convinced that the decisions it took in labour-related issues were necessary because it has now re-established respectful and more co-operative relations with AMCU and has largely addressed the operational issues that affected it in the first half of 2019.
Firm stance 'necessary'
"We remain convinced that the firm stance we adopted was appropriate and necessary, with the losses incurred at the SA gold operations, fully justified by closing the Lonmin transaction with no further objections to the transaction by AMCU and notably more constructive labour engagements achieved at the SA PGM operations during H2 2019," said Sibanye’s statement in the financial results report.
In September last year, Sibanye announced plans to restructure Marikana to create a more sustainable cost structure. When the restructuring finally came into effect in early January 2020, 1 142 employees were retrenched, and contractor numbers were also reduced by 1 709 people. The company had initially said 5 270 jobs were at risk.
The absence of operational disruptions that affected Sibanye in the first half of 2019, together with the rising prices of precious metals, helped the company grow revenue by 44% to R73 billion. Its Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), meanwhile, jumped 79% to a record R15 billion. Mining companies report EBITDA because it is considered the most reliable indicator of operational efficiency in the sector.
Commodity prices boom: a boon for SA mining
Sibanye said its SA platinum group metal (PGM) operations benefited from a 230% price increase in the second half 2019. This was primarily driven by a 25% increase in the average rand basket price of PGM. Sibanye said the rand basket price of platinum group metals had already risen by 38% in 2020, and if this growth is sustained, it implies a "significantly stronger financial outlook for 2020".
As for its gold operations, Sibanye said the 22% increase in the average rand gold price in the second half of 2019, coupled with improved operating performance following the conclusion of the AMCU strike in April 2019, is what helped return SA gold operations to profitability in the six months to December. The company is also hoping to benefit from further gold price increases.
"As with the SA PGM operations, the SA gold operations are significantly leveraged to the rand gold price, which has risen by a further 10% to R757 500/oz (US$1 580/oz) year to date. If maintained, this will significantly improve the profitability of the SA gold operations in 2020," said Sibanye.