Surge in commodity prices drives Sibanye Q3 earnings through the roof

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  • Higher gold and platinum group metals helped drive earnings for the company, despite the impact of Covid-19 disturbances.
  • The company was also favoured by a weaker rand, which depreciated by 15% during the third quarter.
  • The slower build-up in Marikana operations following the easing of lockdown restrictions hampered output.

Higher Platinum Group Metal prices and a weaker rand drove a surge in Sibanye-Stillwater earnings in the third quarter of 2020, with rhodium and palladium being the star performers, despite their smaller contribution to the group's output.

In an operating update released on Thursday, Sibanye said the average basket price for platinum, palladium, rhodium and gold during the third quarter was 81% higher than the previous corresponding period, with significant price gains in rhodium and palladium.

The rand depreciated by 15% against the dollar during the period, adding to the company's good fortunes.

The record average platinum group basket price, combined with a steady increase in production post the Covid-19 lockdown, saw a 217% increase in adjusted net income for the South African platinum group operations to R9.28 billion for the quarter, with the adjusted EBITDA margin more than doubling from 25% in 2019 to 58% for the three months to end September 2020.

As a result, the elevated precious metal prices, together with a weaker rand, "ensured record prices for the basket of metals produced in South Africa and close to record levels in the US", said the miner, which has operations in North America.

The average gold price during the third quarter of 2020 was $1 845 an ounce, 27% higher than for the comparable period in 2019.

Improved cash flow generation helped the company drive down debt, with net debt at the end of the third quarter down 40% to 0.33x from 0.55x at the end of June 2020.

Covid-19 lockdowns

However, production from the Marikana operation, previously owned by Lonmin, was 26% lower than the corresponding period in 2019, due to Covid-19 lockdown constraints and the build-up at the shafts being slower than at the more mechanised Rustenburg operation.

The company said the Marikana operation employs a higher proportion of foreign nationals and employees from provinces outside the Rustenburg area, something which added to delayed build-up in production after the easing of restrictions.

The lockdown restricted the movement of people, as cross-border and inter-provincial travel was banned.

In June 2019, Sibanye concluded the acquisition of the entire Lonmin assets in a R5 billion transaction, helping the miner consolidate its role as a significant platinum producer.

The restructuring of the Marikana operations and closure of three Generation 1 shafts, which produced 10 537 ounces in the third quarter of 2019, also contributed to the decline in production year-on-year.

In the US, the Blitz project development, which is the extension of the Stillwater mine, has been reviewed following the suspension of growth capital activities due to Covid-19, which has further delayed the project schedule. Production from Blitz now expected to reach a steady state run rate of approximately 300 000 ounces of platinum and palladium per annum by 2024.

The company said the US PGM operations continued to operate throughout the year, but Covid-19 safety protocols, particularly compliance with social distancing requirements had a negative impact on productivity levels.

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