Froneman dismisses rights issue risk for Sibanye-Stillwater

NEAL Froneman, CEO of Sibanye-Stillwater said a rights offer to shore up the group’s under pressure balance sheet was a last resort.

“This preception is that there will be rights issue is completely wrong,” he said on Tuesday at the group’s annual results presentation. “That’s maybe the fifth or sixth parachute that we could pull”.

Sibanye-Stillwater ended the 2023 financial year with net debt of R11.9bn excluding debt on its now discontinued Burnstone gold project, equal to a net debt to adjusted Ebitda ratio of 0.58x. The ratio is used by investors to gauge a company’s ability to cover its debt from earnings. The current ratio is below Sibanye-Stillwater’s ‘comfort’ level of 1x and far below the ratio which would break lender covenants of 2x.

Analysts voiced their disapproval of the balance sheet. Christopher Nicholson, an analyst for RMB Morgan Stanley commented that he was “disappointed by the net debt build”. He also that the company’s forecast cash burn for this year of R8bn to R10bn was “not good enough”. Adrian Hammond, an analyst for Standard Bank Group Equities also expressed concern at the cash burn.

Froneman acknowledged that in the absence of a metal price recovery and cost reduction measures the company would start “hitting its head” against a 2x net debt to adjusted Ebitda ratio. But he responded: “We won’t get to that position.

“We will deal with it well before time. We expect commodity prices to change, but we are not sitting on our hands. We will reschedule capital on so on.”

“We are going to raise additional capital. We have been very successfully using streams (selling forward metal production on contract) in the past and prepayments. None of that is debt or dilution to shareholders,” said Froneman.

“There are smart ways of raising capital on assets, especially those that are difficult to find partners for or are difficult to sell. Please don’t think we are not doing anything to further strengthen the balance sheet.”

Sibanye-Stillwater said it had deferred capital projects and cut production equal to some R6.6bn on savings in the 2023 financial year and said that should metal prices persist at current lows more restructuring was on the cards.

Nearly half of the savings from restructuring (R3bn) was achieved at the firm’s US PGM mine Stillwater after Sibanye-Stillwater called time on a proposed expansion to 700,000 ounces a year of palladium and platinum. Production for 2024 is expected to be between 440,000 to 460,000 oz.

Charles Carter, head of Sibanye-Stillwater’s North American region asked analysts for time to prove the company had a response to poor palladium prices, although he also acknowledged that a spot price of $960/oz at the time of the results announcement was not helpful to Stillwater mine’s cause.

Since then the palladium price has shot up to $1,029/oz, an increase on Wednesday alone of about 8%.