Froneman says Sibanye-Stillwater won’t be ‘dinosaur’

THIS was the familiar face of Neal Froneman, who took the helm of Sibanye-Stillwater’s interim results presentation earlier this month, but what he had to say on the topic he usually favors was decidedly different.

Asked for his views on mergers and acquisitions, especially in gold, where the company’s South African assets are in structural decline, Froneman replied irritably: “We are not focused on external growth. I thought I made that clear. We are limited to what is necessary.”

Simply put, Sibanye-Stillwater’s most important concern is staying in business despite a heavily leveraged balance sheet. The group saw a cash outflow of R7bn in the six months to June, a consequence of last year’s crash in platinum group metals (PGMs) and nickel prices. Net debt rose by R6.8bn to R18.7bn. The company’s shares were 43% lower before the results were announced.

Sibanye-Stillwater has thrown everything into the red to reduce its net debt-to-earnings ratio, which measures its ability to repay loans. It has sold R1.8bn of pre-mined gold, refinanced its revolving credit facility and cut staff, which, combined with deferred projects, saves R7.4bn. It also has $600m-$700m in pre-paid gold and base metal sales in the pipeline. Before those measures were finalised, lenders agreed to raise their debt commitments to the end of 2025.

Froneman is naturally expansive. The ambition for more is deep. Over eight years, the group has spent R61bn on acquisitions, raising R105bn in cash, according to Morgan Stanley’s RMB report. “Simply put, a successful total return on investment,” it concluded. While that established the group as a PGM producer, acquisitions such as the Stillwater mine — for $2.2bn in 2016 — have started to hurt, burning through $286m of cash last year. A more recent acquisition, the Sandouville nickel refinery in France, resulted in a cash loss of $121m in 2022-23.

We are not focused on external growth. I thought I made that clear. We are sticking to what is most important – Neal Froneman, Sibanye-Stillwater

The long-running growth project at the Stillwater mine has already been abandoned, costing 287 jobs. But it will now halve current production, putting another 800 jobs at risk. Once a symbol of Sibanye-Stillwater’s global ambitions, Stillwater has become a sign of how quickly the best-laid plans can be destroyed by the market.

It was a painful decision for Sibanye-Stillwater, but the company’s quick response to the crisis was met with cautious praise.

Sibanye-Stillwater’s net debt close easily beat JPMorgan’s estimates — by $5.3 billion, it said. Morgan Stanley RMB analysts, led by Christopher Nicholson, commented in a recent report: “We believe the actions taken to address the free cash flow burn in the US PGM assets, combined with securing pre-money/stream financing… will outweigh the weak result.” Crucially, Froneman and team avoided having to use stock to refinance the balance sheet — a key issue ahead of results.

Sibanye-Stillwater shares jumped 18% in the two days after the results. Froneman says about half of that is due to its agility and half to the palladium-led PGM rally. It’s hard to say where one ends and the other begins, but Froneman tells FM that cutting 200,000 ounces a year from palladium-dominant Stillwater will have a big impact on sentiment, which still has a surprisingly large influence on pricing, and worsen the metal’s supply deficit.

Are joint ventures planned?

Another concern for Sibanye-Stillwater is its declining gold production. Its South African gold mines are ageing, which puts the issue in context with Froneman’s failed attempt in 2021 to drum up interest in a three-way merger with AngloGold Ashanti and Gold Fields. Production in 2024 will be 100,000 ounces less than last year, following the closure of a shaft and poor results.

While gold is one of the metals that has generated more cash for Sibanye-Stillwater than it did last year, the company has had to shelve its R6.6bn Burnstone project. But Froneman, showing a willingness to do deals on existing assets, says there has been some internal interest in a potential joint venture in Burnstone. “It’s surprisingly very valuable, but we’re not committed to selling it or keeping it. We’ll consider the right offer,” he says, adding that “there are people fishing.”

Sibanye-Stillwater is not out of the woods yet – Arnold van Graan, Nedbank Securities

More urgent is a deal involving the company’s uranium assets, which Froneman expects to materialize in the next three to six months. Greg Cochran, Froneman’s former energy business associate at Uranium One, has “a commitment to work with multiple parties. I can’t say more for fear of compromising the talks,” he says.

The joint venture in gold and uranium assets aims to attract more money to the balance sheet. “Sibanye-Stillwater is not out of danger yet,” says Nedbank CIB analyst Arnold van Graan.

The big question on shareholders’ minds is that the miner still has projects to finance, including Keliber, a new lithium plant in Finland. It’s a sign of Sibanye-Stillwater’s solidity that it managed to secure a R10bn green finance deal in August.

Then there’s the Rhyolite Ridge project in the U.S., another lithium project. If the environmental and economic studies pass, the company will have to think about repurposing its balance sheet—and Froneman seems ready to do that. “This company is not going to be a dinosaur,” he says.

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