Sibanye-Stillwater lops R2.8bn from capital budget as targets aggressive debt reduction

Neal Froneman, CEO, Sibanye-Stillwater

SIBANYE-Stillwater said it would not relent in having balance sheet control its top priority this year after reducing net debt to below its long-term target.

As a proportion of earnings before interest, tax, depreciation and amortisation (EBITDA), net debt came in at 0.75x in the first (March) quarter of its financial year – better than the 1x long-term target and a far cry from the 2.5x at the close of the 2018 financial year.

Its efforts will be assisted by a significant R2.84bn cut in non-essential capital in the wake of the pandemic, although the group added that of retained spend, about 60% of it related to growth capital. The group’s US platinum group metal (PGM) asset, Stillwater, would still book a meaningful increase in production this year, it said.

The improvement in Sibanye-Stillwater’s balance sheet also presages the resumption of the dividend in the second half of the year to which CEO, Neal Froneman, alluded in February. Further afield, a strong balance sheet augurs well for Sibanye-Stillwater’s diversification ambitions via merger and acquisition activity.

First quarter EBITDA came in at $723.8m which compares to $502.8m in the December quarter and far outstrips the anaemic-looking pre-tax March quarter earnings of $57.7m a year ago. The main movers on a year-on-year basis were better pricing for gold, especially in rand terms; the return to production of Sibanye-Stillwater’s gold facilities; and the incorporation of Lonmin’s (now Marikana’s) platinum group metal (PGM) production.

Froneman said in notes to the group’s earnings announcement that PGM prices had reacted negatively for a while to the shock supplied by the COVID-19 pandemic, but had subsequently restored on the basis of their fundamentals shortage relative to demand.

“The group is in a solid financial position, with leverage now comfortably below our 1x target and sufficient liquidity, despite the temporary suspension of production at our South African operations in April 2020 in accordance with South African COVID-19 lockdown regulations,” said Froneman in his commentary.

Underground gold and PGM mining was expected to ramp up to 50% capacity this month whilst Stillwater Mining was relatively unaffected by COVID-19 restrictions.

CAPITAL CUTS

Of the R2.8bn reduction in spend for the 2020 financial year, the majority would be at Stillwater. Some $60m (R1.1bn) in capital spend would be cut, taking the new number to between $200m to $220m.

Similar reductions in capital spend have been made in South Africa: some R900m had been cut from the capital budget of the PGM assets to R2.2bn whilst at R2.5bn, the South African gold operations would spend R840m less.

About 71% of the capital reduction in the gold division related to ore reserve development which had been deferred while the operations were on care and maintenance, 10% on growth projects (Burnstone), and 19% on other capital projects, said Sibanye-Stillwater.