SIBANYE-Stillwater will report a more than 100% decline in basic earnings for six months ended June owing to depressed metal prices which resulted in another heavy impairment, this time for the US palladium and platinum mine Stillwater.
Commenting in a trading statement today, the group said it was examining further restructuring at Stillwater.
Basic earnings for the interim would come in between a negative 250.8 South African cents and negative 277.2c compared to positive earnings of 262c in the previous period.
The update will not be a major surprise to the market as reflected in Sibanye-Stillwater’s share price, down 34% year-to-date. Shares in the company were 4.5% weaker in the first few hours of trade on the Johannesburg Stock Exchange.
The earnings losses were positively offset by gains on derivative instruments as well as an 18% improvement in the average gold price. Unfortunately for Sibanye-Stillwater, its South African gold mines are edging towards their latter years. Consequently production was down a fifth to 265,179 ounces year-on-year after Kloof 4 shaft was closed and seismicity interrupted output at Kloof and the neighbouring Driefontein mine.
But it was the average platinum group metal (PGM) price during the six months that did the most damage to Sibanye-Stillwater: 28% lower for the average rand 4E PGM basket price and a 30% lower average US dollar 2E PGM basket price year-on-year.
The latter in particular may have further consequences at the firm’s Stillwater mine in the US where the jobs of 287 employees including 187 contract workers were cut at the mine in November. A year earlier Sibanye-Stillwater delayed an expansion of Stillwater to 700,000 ounces a year and then abandoned it setting a new production target of between 440,000 to 460,000 oz for the 2024 financial year.
Neal Froneman, Sibanye-Stillwater CEO said in July he was prepared to put Stillwater on care and maintenance as palladium prices continued to languish. “The future of Stillwater remains in the balance. It’s as simple as that. If there is no correction in price, as strategic as it (the mine) is, we will have to put it on care and maintenance,” he said at the London Indaba conference.
That reality edged closer. In its trading statement today, Sibanye-Stillwater said: “Despite the operational improvement, further actions to address the cost structures at the US PGM operations are being assessed, as depressed PGM prices remain a significant challenge”.
In the six month period, Stillwater was impaired by R7.5bn ($401m) “… primarily due to lower medium- to long-term forecast consensus palladium price assumptions that resulted in a decrease in expected future net cash flows”.
Sibanye-Stillwater cannot afford to carry a major lossmaker on its balance sheet as this would undo its recent efforts to secure the company’s finances while the PGM downcycle continues. In August, it raised R1.8bn from a gold prepayment deal and increased a revolving credit facility to R6bn while in June it agreed with lenders to raise thresholds over R6.5bn in company debt.
Another item of the trading statement was that the company had increased nickel production from its Sandouville facility in France but acknowleged the operation was still not profitable.
On August 22, Sibanye-Stillwater said it had secured a €500m (R10bn) “green” financing package to pay for its proposed Keliber lithium mine project in Finland which is intended to provide lithium to the European battery market.
