[miningmx.com] – SIBANYE Gold will generate enough cash flow between now and 2028 to continue paying a R1bn dividend per year barring unforseen circumstance such as industrial action, the company said last month.
It also believes its project pipeline, and even the potential acquisition of platinum mines from any of Anglo American Platinum (Amplats), Lonmin or Impala Platinum (Implats) won’t affect its shareholder payout returns.
Shareholders have become increasingly focused on cash returns over capital growth following just over a decade of heavy capital investment by the mining sector which has seen some investors poorly rewarded, if at all.
Shares in BHP Billiton earlier this week fell 5% after investors were disappointed to learn that there would be no share buy-back or special dividend this term notwithstanding the group’s demerger proposal which will allow it to focus on its key assets in iron ore and petroleum.
Neal Froneman, CEO of Sibanye Gold, is still struggling to convince sceptics that his plans for sustained dividend payments are for real, at least on the evidence of comments he made at the group’s June quarter figures in July.
“We have read all the analysts reports,’ he added.
“We note the scepticism, but hopefully there will be recognition that we are dead serious about this [dividend payments]. We will strive to be a benchmark dividend payer in the sector,’ he said.
Sibanye Gold announced it would pay a 50 cents per share interim dividend representing a 35% increase year-on-year. This is in excess of its stated dividend policy of paying out 25% to 35% of normalised earnings, a metric that removes unusual or one-time influences.
“We paid a dividend that was in excess of policy because we could,’ said Froneman.
Sibanye Gold’s headline interim earnings fell 36% to R533m, partly owing to a write-down on losses in Rand Refinery in which Sibanye is the second largest shareholder, but Froneman is asking market watchers to keep their eye on the ball.
Assuming a gold price of R430,000 per kilogram (against a current price of R437,000/kg) and a rand/dollar exchange rate of 10,50 (R10,69 at the time of writing), Sibanye Gold calculates it will generate enough free cash flow until 2028 to afford the R1bn dividend it paid out in its 2013 financial year.
The premise on which the dividend is built is transforming Sibanye Gold’s production profile from the harvest-mode adopted by the former owner, Gold Fields, in favour of cost competitiveness and, crucially, production growth.
This is where the sceptics come in. They contend Sibanye’s growth profile smacks of empire building, that new acqusitions will be capital hungry, and that returns to shareholders will be sacrificed.
Of course, it remains to be seen whether Froneman and his team can deliver, but he wants his critics to accept what’s already been achieved. For instance, Froneman has grown Sibanye’s production in 2014 to 1.7 million oz against the 1.3 million oz planned by the former owner of the gold mines, Gold Fields.
Furthermore, Froneman thinks he can take group production to 1.8 million oz/year by 2028 which is the year when Gold Fields believed its assets – the Driefontein, Kloof and Beatrix gold mines – would have been mined out.
Sibanye’s conceptual cash flow figures, after capital and tax, will be around R2bn rising to R3bn by 2022 and to just under R5bn in 2026 – easily accommodating the R1bn dividend payout of last year and most probably allowing for a much higher dividend payout. In other words, Sibanye thinks it can fund its project pipeline without risking the dividend.
“We will be able to fund the existing dividend profile of about R1bn through next 14 years of cash from existing reserves,’ said Froneman.
At least that’s the plan.
In reality, mining rarely allows for the neat lines of conceptual cash flow graphs.
“There’s still headroom between the dividend requirements and cash flow assuming the continuity of business without external factors such as strikes, fires, difficult business conditions and so forth,’ he said.
His project pipeline may include platinum shafts no longer wanted by Amplats, or even the non-core assets of Lonmin and Implats which could also be sold to the likes of Sibanye Gold.
“The one public seller of platinum assets [Amplats] is going to take a lot longer to sell the mines than six months,’ said Froneman referring to the original schedule he had set down to complete a deal.
“But we have got five targets and we’ve been through the front door of all the companies,’ he said. “We continue to engage with them, but it would be improper to say who they are’.
