Sibanye-Stillwater is about to produce an astonishing profit surge — up to R29.9bn for the year to end-December from just R62m this time last year. It’s a vindication of the company’s costly punt on palladium producer Stillwater, as well as its acquisition of lame-duck Lonmin. The FM spoke to CEO Neal Froneman.
Does this huge profit mean a bumper dividend or a new buying spree?
NF: Certainly we’ll pay out an industry-leading dividend: we’ve always said that and we’ve been working back towards this point. We do want to invest in some brownfields projects and that’s critical for sustainability so that’s also a requirement, and then of course we want to build up reserves to pay down our gross debt. Any sort of acquisition has to stack up in terms of whether we can create more value through a deal or by returning cash to shareholders.
Are you thinking of taking out any hedges at this point? For example, against rhodium — isn’t the price a bit mad here?
NF: It’s very difficult to hedge some of these metals, but what I also want to tell you is that the fundamentals are still very good. There’s no reason for rhodium to come down. There’s no reason for palladium to come down in the next has a great future. There’s been a lack of investment in expansion since 2008. At the same time, we have started initiatives to ensure sustainability such as substitution of palladium with platinum and as the fuel cell and hydrogen economy takes off, the demand for platinum will rocket. Platinum in a few years will be at $2,000 an ounce, I have no doubt.
Paul Miller came out with a pretty devastating report recently on the lack of exploration spend in SA. Can you see anything improving?
NF: Paul’s spot on. Think about it like this: when you go to your board to get capital approved, you have to show them what the weighted average cost of capital is, and included in that are the technical risks of the project and the political risks. You can imagine with the state of SA that the hurdle rate for a project has increased many times.
To what level, say?
NF: Well if you think your cost of capital is below 15%, you have probably got it wrong. So then the board says: OK, are you sure we’re going to have enough power? Are you sure that the cost of power is not going to kill this project in the middle? That’s why very few projects are good enough to actually be implemented. They have to be so robust. [Minerals Council SA CEO] Roger Baxter alluded to them last week: R20bn of projects waiting for the right conditions. I know you’re going to ask me about the [Investing in Africa] Mining Indaba — yet we have a president who comes and tells us how we must comply with the charter. We need to get a fat wake-up call: the priority needs to move to creating an investor-friendly environment. We’ve got to have commercial views of the country and [the government has] done nothing, nothing to actually stimulate investment interest. I don’t think [it knows] how investors think, to be blunt.
You must be frustrated.
NF: It’s absolutely atrocious that ... one of the premier mining events in the world gets so little recognition from our government. It’s a showcase, yet you’ve got countries like Botswana that steal the limelight and will continue to steal the limelight because they have an investor-friendly environment. "Transformation" is not the overriding thing.
Is there still a point to the indaba?
NF: If we’re going to continue to send negative messages to visitors to SA who look at mining, we shouldn’t have another one, because quite honestly it’s an embarrassment.
There’s talk that Sibanye is keen to get involved in so-called battery metals.
NF: Absolutely. About two years ago we bought a company called SFA (Oxford) and it started work on a battery metals strategy. Very similar to the way we entered PGMs [platinum group metals]. That two years is now done, we understand the sector pretty well. Everyone thinks we just buy — we don’t. We turn down many things. But I’d be disappointed if we didn’t do at least one battery metals acquisition this year.
Why do you think you have that tag?
NF: When we move, we move very fast but you can see the results of that. We take a lot of criticism because people don’t look forward.
But we do a lot of work before we spend shareholders’ money.