Sibanye-Stillwater: Our R6.8bn mining investment is 'not a vote of confidence'

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Neal Froneman.
Neal Froneman.
  • Sibanye-Stillwater says its R6.8 billion mining investment is not a vote of confidence in the local market. 
  • CEO Neal Froneman says there are many other projects which will not pass the industry's investment hurdles, and that would be a lost opportunity for the country.
  • The miner says it still has interest for gold assets and is on the look out for potential acquisitions.

Sibanye-Stillwater - which will be investing R6.8 billion in three mining projects in the country - has sounded a stern warning that the move must not be seen a vote of confidence in the current investment climate in the country.

The capital injection is a major boost for the investment starved sector, which has shed thousands of jobs over the past years as companies switched to cash-preservation mode in the face of challenging working environment and increasing costs.

However, CEO Neal Froneman has not minced his words about what could be a missed opportunity for the country's mining industry, given current investment conditions.

"The commitment to invest approximately R6.8 billion in the three major capital projects approved by the board should not be construed as a vote of confidence in the investment climate in South Africa," the company said on Thursday as it released its annual financial statement.

The K4 and Klipfontein platinum projects as well as the pre-developed Burnstone gold asset in Balfour, Mpumalanga, are expected to contribute to Sibanye's growth strategy, as the company has expressed interest in seeking out more gold assets. Klipfontein will prolong the life of Kroondal mine and the K4 project will ensure the sustainability of the Marikana operations for about 50 years. 

The projects are expected to deliver significant socioeconomic benefits to the Rustenburg region, with the K4 project providing approximately 4 380 jobs at steady state and the Klipfontein project around 124 jobs.

Many prevailing risks

Froneman highlighted the prevailing policy-related risks, power reliability and rapidly rising power costs, potential of social unrests as some of the key inhibitors of growth and investment in the sector. Eskom has recently been given a green light to hike electricity tariffs by as much as 15%, in what likely to pile more pressure on large consumers.

Some companies are increasingly turning to renewable energy sources and self-generation of power in a bid to reduce their reliability to Eskom. 

"There are many other projects which will not pass these hurdles, and that is a lost opportunity and you will likely find the same thing in other South African mining companies," said Froneman. 

The company said this has been apparent in previous commodity upcycles, where only projects with an extremely strong commercial case can be justified, resulting in the country lagging the rest of the world in terms of investment in the sector.

"It is only the best projects such as K4 and Burnstone, and perhaps a few others that may come to fruition under these conditions."

According to the Minerals Council of South Africa, about R20 billion in investments could be approved under a supportive environment, and the industry body has joined the growing chorus lamenting the unrealised potential of the local mining industry.

"We need to recognise that the state of the South African economy is very fragile and the ongoing Covid-19 pandemic continues to wreak havoc," said Froneman.

"Right now we hear talk of a commodity super-cycle, so with that positive outlook there is an opportunity for the mining industry to significantly contribute to the economic growth of South Africa."

Appetite for gold

Formed in February 2013 following the unbundling of Gold Field assets, Sibanye has grown into a leading platinum producer through the acquisitions of Stillwater and Lonmin. Froneman stated the company's gold base had become smaller compared to other assets, but that has not diminished its appetite for gold assets.

"We remain interesting in increasing our gold base but we battle to find value within the sector, but we continue to look," he said.

The local gold operations contributed 19% to adjusted group earnings, after coming out of a five-month strike in the first half of 2019. As a  company that started out as a gold company, Froneman reiterated the company's love for gold, saying they wish they had more gold assets.

Sibanye has also expressed investing in battery metals through medium-sized acquisitions, but the process would have to fit  in with the company's capital allocation model and not tamper with its ability to pay dividends.

"We are going to be dipping our toe in the water, they are going to be medium to small. It won't be greenfields, that is not our business model, but it could be projects that are close to development, smaller affordable acquisitions," said Froneman.

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