5 of Africa’s most under pressure mining bosses in 2018

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RUNNING a mining company is not beer and skittles at the best of times, but there a number of industry bosses who are under particular pressure at the current time. Miningmx identifies those with the most to prove and what they must do to keep their seats.

Nico Muller
CEO: Impala Platinum
Appointed: April 2017

Impala Platinum mines palladium, which is doing rather well at the moment, but its main product – platinum – is stubbornly resistant to price improvement. The rand has also firmed as currency speculators line up the possbility of improving business conditions in South Africa.

Whilst this is net good for mining firms in the long-term, it’s not great for the revenue lines of struggling miners in the short-term.

Set against these conditions, Nico Muller is faced with a mountain of a task in judiciously cutting unprofitable ounces from Implats’ Rustenburg mines. Unions will oppose him, however, which is dangerous given that retrenchments – estimated to be 2,500 people in the first iteration of the firm’s restructuring – will heap pressure on communities in a sensitive region of the country.

What’s interesting about Muller, however, is that in addition to cutting ounces, he’s invested R400m for a 15% stake in the Waterberg project of Platinum Group Metals, a company listed in Toronto. Implats also has the option to take control of the project for a total cost of R2.5bn giving the firm operational flexibility for the future.

Neal Froneman
CEO: Sibanye-Stillwater
Appointed: 2012

It seems odd to point to Neal Froneman as an under pressure mining CEO, especially following a year in which the company gob-smacked Johannesburg by splashing out R30bn in buying Stillwater Mining, a US company – an enormous transaction which was followed up with the £285m proposed takeover of Lonmin; and yet another in which Sibanye-Stillwater has an option over control in DRDGold.

But Froneman’s task is making all these spectacular corporate moves coalesce into a single, coherent strategy of geographic and mineral diversification. Dividends – described by Froneman as the basis of Sibanye’s investment case – have temporarily been replaced with the issue of capitalisation shares, whilst net debt is pretty high. So the last thing Froneman needs is to falter operationally.

Arne Frandsen
CEO: Pallinghurst Resources
Appointed: September 2007

Ten years is a long time to have been a CEO, especially given that the share price of the company has fallen about 10% in that time and only two dividends have been paid. But then, Pallinghurst Resources is not exactly a mining company in the traditional sense.

In fact, 2018 will be the first year it’s considered a fully-fledged operating company. For the previous ten years it was an investment firm. That strategy, which coincided with the meteoric rise and fall of mineral prices, has not yielded the return that Palllinghurst’s very loyal shareholders would have desired.

The plan for Frandsen now – and hence the pressure – is to restructure the company so it has meaningful exposure to the commodities in which it wants exposure.

It has already seized full control of Gemfields, a coloured gemstones company, which it delisted (amid some minority shareholder opposition); and has suggested entering into joint venture in its Fabergé brand through which it markets the gemstones. It’s also questionable that Pallinghurst will want a long-term exposure to Sedibelo Platinum Mines, an unlisted firm that is burning cash.

It does, however, want a greater piece of its manganese investment – the Tshipi mine which it owns indirectly through Jupiter Mines, an Australian firm. As one can see, the Pallinghurst investment universe sprawls. So Frandsen has to tidy it up and give shareholders comfort there is an actionable plan that makes money.

Mike Jones
President & CEO: Platinum Group Metals
Appointed: 2000

Seventeen years after founding Platinum Group Metals, Jones has precious little to show for it. The firm’s mine – Maseve – has been shut and its processing facilities sold off to Royal Bafokeng Platinum. All that’s left is the Waterberg project, a large palladium and platinum deposit which is touted as the next big thing.

At least Jones has extracted some value out of this project by selling a 15% stake to Impala Platinum, but the pressure is on to turn promises into monetary returns, and try not to spend another 17 years trying to achieve that. Nobody has that long.

Peter Geleta
Interim CEO: Acacia Resources
Appointed: November, 2017

Being ‘the interim guy’ is no fun; just ask anybody at Eskom, or in a significant number of individuals serving in South African government departments which have redefined the term. In the case of Peter Geleta, an South African running UK-listed Acacia Resources (formerly African Barrick), it’s like being the fattest turkey during Advent.

A massive run-in with the Tanzanian government around a disputed tens of billions in dollars of unpaid tax, and newly promulgated regulations requiring free-carry Government investment in selected mining firms – resulted in the firm’s CEO and CFO quitting on the same day. In stepped Geleta, previously human resources.

His job is to keep Acacia ticking over even though its flagship mine has been put on care and maintenance whilst the firm’s 64.9% shareholder, Barrick Gold, has undertaken – on Acacia’s behalf mind you – to pay $300m to the Tanzanian government in compensation for the tax claims.

First, though, minority shareholders in Acacia must approve the tax payment; then begins the process of negotiating the free-carry sale of shares in the company to the government. Who’d be a CEO?

19 COMMENTS

  1. Dear Fellow Readers,

    I believe , given the R/$ exchange rate, Froneman will be the most under pressure mining CEO. Mainly because SGL will need to amend its covenants should the R520K/kg persist , together with a R2,5Bn during an unfavourable R/$. The key profit driver remains the gold division. Now with revised production of 1,38Moz/yr for FY17, I worry about SBL breaching its covenants. If FY18 gold production guidance is anything $1050/oz persist. It goes to illustrate why operational rigour and discipline are so important to support M&A which is Debt-fuelled. How ironic it will be for SGL to rescue Lonmin ONLY for itself to get stuck in a similar quicksand/morass…

    If my fears come to pass, then SGL will suffer from an unprecedented value-destructive bulimic M&A hangover in RSA.

    Yours Truly,
    GS

    • Good analysis. SGL poor operational performance was masked by the weak rand since our President’s firing of his finance minister two years ago. Recent events have led to currency strength so that mask has fallen off. Perhaps debt levels are too high in this environment. There is always the helicopter option available, i.e. get in and fly away when the going gets too tough and let somebody else attend to the wreckage.

  2. As stated before, Neal has a history of biting off more than he can chew. Oh well… hopefully, Harmony plays her cards well.
    Let’s accept: Survival=Success😆

    • And where will Harmony get the cash to make a bid for any of Sibanye’s assets?

      They have exhausted their $350M ( $175M term loan ; $175M RCF) credit card, which was recently up-sized from $250M. With gold price at R520K/kg, they are now borrowing to pay for SIB CapEx to keep the clunkers going. They have asked their shareholders to provide them with authority to issue some 30% of equity at this depressed share price via rights issue to pay for Moab’s $200M Bridge financing.

  3. I am at times intrigued by the editing of my comments.

    When I am writing positively about certain companies, then my comments are not edited. When I am objectively criticising BEE deals, the comments are never edited despite being hard hitting.

    When i am critiquing some mining companies , then suddenly the editor feels the need to edit despite using figures from annual reports of such companies. This cannot be fair. Opinion expressed ARE NOT of miningmx.com BUT of its readers. THE EDITOR SHOULD SIMPLY STATE THIS AS A DISCLAIMER AND POST SUCH COMMENT IN FULL (unless it uses vulgar language etc). There is a precedent court judgement about this issue ( Huffington Post Matter). Anything else is frankly censorship…

    Kind regards
    GS

    • Hi – I only edit instances of hate speech, bad language and what not.
      Maybe if you can provide me with the most grievous instance of your claim?

      David

      • Dear David,

        I avoid using hate speech & bad/vulgar language.

        When i seek to support my views with factual publicly available figures cannot be called “what not”. Otherwise , the comments are just empty & do not facilitate debate given that they are not supported by numbers.

        The following was my comment :

        I believe , given the R/$ exchange rate, Froneman will be the most under pressure mining CEO. Mainly because SGL will need to amend its covenants should the R520K/kg persist. SGL Net-Debt was ±R20Bn for end Q3FY17 , whilst requiring an additional H2FY17e EBITDA > R2500M to make their covenant of >3,5x ND:EBITDA for FY17 at R520k/kg gold price. Furthermore, even at this improved PGM basket = >R13k/oz 6E ( or > $1050/oz 4E) , they will still require flat cost ( AISC = R485K/kg) at the Gold Division to produce some >1,45Moz for FY18e if this R/kg gold price persist. It goes to illustrate why operational rigour and discipline are so important to support M&A which is Debt-fuelled. How ironic it will be for SGL to rescue Lonmin ONLY for itself to get stuck in a similar quicksand/morass…

        If my fears come to pass, then SGL will suffer from an unprecedented value-destructive bulimic M&A hangover in RSA.

        There is NOTHING hate speech about my aforementioned comment.

        Thank you for the platform.

        Regards
        GS

    • I have personally suffered loss because of Froneman’s largess. When I see his name mentioned, i tend to write something negative to warn other investors. Sometime, I get my whole reply blocked.

      • Hi Jimslulu

        I would never block a whole reply unless it contained hate speech, bad language or – I should add – contain elements that could get me and Miningmx sued.
        So I did edit your original comment which contained a comment that could potentially expose me to a defamation claim.

        David

  4. It is weird that Ben Magara is not mentioned in this analysis. Is he off the hook, because that company is being acquired ?

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