SIBANYE-Stillwater brought the curtain down on a mammoth $2.7bn (R44bn) debt reduction programme saying in a third quarter update today – in which record adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) was registered – the way was clear for improved dividend payments.
The company announced an interim dividend in August of R1.4bn, its first payout to shareholders in about three years after raising $2.2bn to buy Stillwater Mining, a US platinum group metals (PGM) company. This transaction signalled the beginning of an aggressive diversification strategy into PGMs and a massive debt undertaking.
The firm said today that adjusted EBITDA was R15.59bn for the third quarter ($922m), some 182% higher year-on-year, equal to R10.1bn ($545m). The improvement was owing to elevated precious metal prices, especially PGM prices, which Sibanye-Stillwater said underlined the importance of its push into production of a metal other than gold.
The impact on the balance sheet, Covid-19 related downtime notwithstanding, has been significant.
Despite the dividend payment, net debt to adjusted EBITDA as of end September fell 40% to 0.33 times from 0.55x at June-end.
In addition, Sibanye-Stillwater issued about 248 million shares settling the balance of a $450m bond used to part finance the $2.2bn acquisition of Stillwater Mining in 2016. As a result, net debt to adjusted EBITDA falls to 0.05x at 30 September 2020.
“Net debt/EBITDA of 0.33x implies net debt of about R13bn and R4.5bn of free cash flow in 3Q before the R1.4bn dividend payment,” said RMB Morgan Stanley in a note. “With deleveraging now largely complete … and South African operating at normalised production run-rates, the release states that the ‘… group is well positioned to deliver superior total returns to shareholder'”, said the bank citing Sibanye-Stillwater’s Q3 statement.
“The strategic deleveraging which has been a primary focus since 2017 is now complete,” the company said, adding that it was positioned to continue generating “… significant cash flow”.
Production run-rates from the Sibanye-Stillwater’s South African gold and PGM assets had largely been returned to pre-Covid-19 levels and whilst there was an increase in infections – especially in the US where productivity had been hit by 8% in the third quarter following a “sharp spike” – the company didn’t anticipate further closures.
The way is therefore open for an increase in the payout to shareholders although there’s always the prospect of additional deal-making given CEO, Neal Froneman’s comments regarding expansion into the US precious metals market as well as the addition of strategic battery metals investment.