Tailwinds for Sibanye-Stillwater’s Stewart but dangers lurk

By
David McKay
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Richard Stewart, CEO, Sibanye-Stillwater. REUTERS/Ihsaan Haffejee

THERE was never a question of Neal Froneman shedding tears of sadness as he stepped from the Sibanye-Stillwater podium for the last time in August, as Mark Cutifani did when he made his adieus at Anglo American in 2023.

Froneman was never one for looking over his shoulder, even if a little more reflection might have sometimes helped during his 13 years as Sibanye-Stillwater’s founding CEO. One gets the idea that Froneman is a person possessed of inexorable forward momentum.

That task of reflection is instead left to Richard Stewart, Froneman’s successor, who must also decide how he plans to tackle Sibanye-Stillwater’s future. Stewart has said the plan is to press on. But it’s no easy job.

The company Stewart inherits is in a better position now than in the previous two years, thanks to a resounding recovery in precious metal prices, principally gold — which made up 50% of interim earnings — and platinum. Group adjusted earnings before interest, tax, depreciation and amortistion (ebitda) of R15.1bn was more than double the first half’s number in 2024, a recovery not lost on the market. “We are incrementally increasing our target price to $8.50 a share,” said BMO Capital Markets analyst Raj Ray of Sibanye-Stillwater’s ADR programme on the back of the numbers in August.

A full six months of yet higher gold and platinum prices is a major positive for Sibanye-Stillwater, especially platinum, to which the company is strongly exposed.

But dig a bit deeper and there are concerns in the business, despite improvements. About R5.1bn of the impressive recovery in ebitda is from green energy production credits under the US’s Inflation Reduction Act (IRA), a subsidy applied to Sibanye-Stillwater’s platinum/palladium mine, Stillwater, for the 2023, 2024 and 2025 (to date) financial years. Stripping this out, ebitda of R9.973bn was well below RMB Morgan Stanley estimates, the bank said.

Sibanye-Stillwater reported positive free cash flow resulting in an improvement in net debt to R19.2bn (down from R23.4bn). Yet again, one-off factors were at play; in this instance, about R9.2bn from Franco-Nevada relating to a streaming agreement for metal by-products.

To Sibanye-Stillwater’s benefit, the company has strong liquidity. Moreover, the sale of metal inventory in the second half of its financial year will provide a burst of cash. Still, exclude these outside factors, described as “noise” by Nedbank Securities analyst Arnold van Graan, and Sibanye-Stillwater’s position is far from simple.

Since the interim numbers were published, the gold price has continued to break records. Sibanye-Stillwater is collecting R2m per kilogram of gold produced. The platinum price has also remained strong, which is the single biggest catalyst in Sibanye-Stillwater’s fortunes. Ed Sterck, director of research for the World Platinum Investment Council (WPIC), correctly predicted in August platinum would sustainably push higher than its current $1,300 to $1,350/oz trading band. It is now over $1,500/oz which is heartening news for Stewart.

“The higher gold price provided a welcome benefit from the South Africa gold operations,” said Van Graan in a note to clients. “However, there were several operational challenges across the group,” he added. These pose immediate challenges.

One is establishing optimal, forecastable gold production from Sibanye-Stillwater’s ageing mines, especially at Kloof on the West Rand, where seismicity resulted in a production guidance downgrade. The likelihood is that only 475,000 to 480,000 oz in gold production is sustainable annually, from just under 600,000 oz two years ago, and 800,000 oz several years before that.

That’s quite a downgrade, so one can understand why Froneman wanted a three-way merger with AngloGold Ashanti and Gold Fields in 2021. His ambitions were frustrated; moreover, it’s questionable whether merger & acquisition activity in gold could become a realistic ambition for Stewart, given the record gold price and valuations sky-high.

A second question is the future of Stillwater mine. The palladium price is about 40% higher this year amid a supply deficit. But there aren’t many reasons to be bullish about the metal in the longer term, according to Sterck. Metals Focus has forecast the metal was heading for a surplus in 2026.

The plan is to restore Stillwater’s profitability, which means getting costs to below $1,000/oz. Progress is being made with the help of the IRA subsidies, but it’s also worth bearing in mind they will be phased out from 2034 in terms of US President Donald Trump’s One Big Beautiful Bill Act, potentially dealing a blow to Stillwater’s long-term prospects.

Then there is the commissioning of Keliber, Sibanye-Stillwater’s lithium joint venture with the Finnish government. It has been a major drain on the group’s balance sheet over the past three years but the worst is over. The peak capital commitment of €783m is now behind the group (€577m has been invested as of June 30).

It’s a project with valuable strategic importance: the first integrated lithium project in Europe, which is no mean feat. But the wheel of fortune is yet to turn for Sibanye-Stillwater. The project was expected to commission in a resurgent lithium market. Yet signs of a deficit are yet to emerge. As of midyear, roughly a third of all world lithium production was loss-making.

Speaking at the results presentation, Stewart referred to “phased or much slower ramp-ups” at Keliber as one of several start-up options while the company waits on a lithium price recovery. It will surely come.

Of greater imminence is a UK high court decision in November that will rule on whether compensation, if any, has to be paid by Sibanye-Stillwater to Appian Capital Advisory. In 2024, the court found there was no material adverse event supporting Sibanye-Stillwater’s decision to withdraw from two copper deals with Appian Capital in 2021/2022. Appian’s latest claim is just over $700m.

A hefty compensation number would be a bitter blow to Stewart’s start as CEO at Sibanye-Stillwater, especially as he’s hoping for the best tonic of all: the resumption of dividends. Dividends were ditched two years ago in terms of the group’s policy. Said Stewart: “Should commodity prices remain where they are, we are confident that we will be back in dividend-paying territory by the end of the year.” Here’s hoping.

A version of this article first appeared in the Financial Mail.

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