[miningmx.com] – SIBANYE Gold injected much-needed esprit into the
South African gold sector, posting March quarter figures in which it recorded higher
production, a hefty reduction in debt, and a focus on capital cost containment.
The performance brings closer the prospect of a dividend payment which Sibanye Gold
has said in the past was a major part of its investment offering.
Said James Wellsted, head of corporate affairs for Sibanye Gold: “We are in
discussions with the banks to review our debt which is currently shorter term and has
some constraints.
“We are confident that if we do not have significant disruptions during the upcoming
wage negotiation period, we will be in a position to pay an interim dividend”.
Sibanye Gold’s policy is to pay 25%-35% of normalised earnings as a dividend, said
Wellsted. “We will be in a position to do so at year-end regardless, even if we do not
pay an interim dividend,” he added.
Sibanye’s quarterly showing also gave lift to the share which was 2.56% higher at
R8.40/share by midday following a dismal near-halving in value since listing. Not even
the widely praised and acclaimed appointment of Srinivasan Venkatakrishnan,
unveiled as AngloGold’s new CEO today, could deliver the same impact. Shares in
AngloGold were, by comparison, just under half a percent higher.
However, with a gold price in the current quarter some $200 per ounce beneath the
March quarter, it remains to be seen if Sibanye Gold can continue the good news
momentum.
It has, for instance, already put Beatrix on a tight leash setting down a three-quarter
timeline in which to restore the Free State mine to planned operating levels. “Beatrix
remains a concern,” the company said in its March quarter commentary.
“Issues” including high costs, low flexibility and lower than planned underground
grades, “… are receiving appropriate attention and it is estimated that it will take
three quarters to rectify the current underperformance,” it said.
Nonetheless, this was a spirited debut by Sibanye Gold which began life in February
this year following the unbundling of Gold Fields’s South African assets.
By dint of having its Driefontein and Kloof mines back to full operating capacity –
which comprised 89% of operating profit – Sibanye Gold produced 299,400 ounces in
the March quarter compared to 220,000 on the December quarter, a one-third
increase.
Consequently, the company more than doubled operating profit in the March quarter
to R1.52bn, although this was roughly R150m less than in the March quarter of the
2012 financial year which is perhaps a better comparison.
Free cash flow came in at R590m helping to balloon cash and equivalents to R1.2bn by
April 30. Net debt was consequently reduced to R2.8bn. It’s worth noting that in
March, Sibanye Gold said it had re-paid R570m in debt reducing net debt to R3.6bn.
Possibly in preparation for harder times to come, the company was focusing on cost
reduction. Notional cash expenditure was R381,347 per kilogram, a 22% reduction
quarter-on-quarter.
Sibanye’s figures provide rare sunshine for a sector where a lower gold price and
inflationary pressure are squeezing the life out of operating margins.
Strike activity, which also afflicted Kloof and Driefontein have added a dimension of
cost risk to the sector, especially ahead of wage negotiations due to kick off later this
month.
Neal Froneman, Sibanye Gold CEO, said his company was “acutely aware of the
heightened risks of strike activity”. It had therefore developed “comprehensive strike
plans” aimed at reducing the effect of downtime.
Restructuring was also imminent at the Beatrix West Section, partly triggered by a
fire which began on February 19. As previously announced by Sibanye Gold, the
viability of the shaft is in doubt. A formal section 189 process had been initiated which
would review alternatives to closure, it said.
Commenting on prospects for the June quarter, Froneman guided for a 14% increase
in group production of 340,000 ounces. Costs would also be wound in a further 5% to
$975/oz.
Annual production is forecast at approximately 1.29 million ounces which is some
110,000 ounces lower than expected at the creation of Sibanye Gold.
