It’s no small irony that after a dealmaking blitz abroad these past few years, Sibanye-Stillwater’s ageing South African gold mines – the genesis of the company – are the ones raking in the money right now.
This is vindication for founder Neal Froneman’s perennial gold bullishness, notwithstanding his latter-day push to make Sibanye a global battery metals powerhouse that is big in lithium, nickel, zinc and platinum group metals (PGMs).
Froneman, who forged Sibanye from the cinders of various out-of-favour gold mines in 2013, will retire at the end of September, and will be replaced by the company’s chief regional officer, Richard Stewart.
But in a wide-ranging interview with Currency, he says gold still remains pivotal to Sibanye’s strategy, acting as an “insurance policy” against cycles putting pressure on the company’s other mining businesses.
“When you have a large industrial metals base, you are exposed to swings in economics. And when economics are bad, then gold becomes strong because it’s a safe haven,” he says.
The theory certainly played out in the three months to end-March. Sibanye’s results on Friday showed a 178% surge in earnings from its South African gold assets to R1.8bn, contributing 44% to Sibanye’s R4.1bn profit – itself a jump of 74%. Most of the rest came from its local PGM assets.
Sibanye scored an average gold price of $2,832 per ounce – or R1,682,730 per kilogram. You can just imagine what a gold price north of $3,000 is going to do to next quarter’s earnings.
As a result of the soaring price, Froneman reckons Sibanye’s gold mines will produce two-thirds of the company’s profit this year.
But Sibanye’s windfall from the spike underscores the sentiment from almost all the analysts Currency spoke to: that Sibanye should have hunkered down and concentrated on its gold and platinum mines in South Africa rather than spending huge amounts building up an offshore portfolio.
For example, Sibanye’s platinum operations in the US — the Stillwater mine it bought for $2.2bn in 2017 — made a loss of R171m; the Sandouville nickel refinery in France posted a loss of R181m; and its Keliber lithium project in Finland will chew up $300m in capital this year.
“Neal called the PGM cycle very well and really did create huge value with the Aquarius/Lonmin/Rustenburg transactions. But almost all the deals since Stillwater have been value destructive so far,” says one fund manager who asked not to be named.
Umthombo Wealth’s Matthew Zunckel is equally downbeat. He argues this offshore strategy “introduces unnecessary risk”, as the company entered “a number of different jurisdictions”.
Sibanye, he says, should ask itself: what can it mine better than competitors and where?
In Zunckel’s view, this is underground PGM mining, preferably in South Africa, while paying out excess cash to shareholders “instead of pursuing risky offshore acquisitions”.
Froneman vehemently disagrees with this view.
“Our recycling business is printing money. Stillwater produced a spectacular result with a really small loss. Our Australian business made a lot of money. And our investment in Keliber is going to be beneficial in the future,” he says.
The US-based Stillwater might be going through a rough time now, but it spewed cash when palladium prices rocketed in the two years after Covid – eventually topping $3,440 in March 2022.
Stillwater, he says, “has paid for itself – analysts seem to forget that. You might say there was a price spike, but that’s why we bought it. And palladium will come back.”
One of the biggest questions that analysts typically raise when discussing Sibanye is its debt — now standing at about R42bn.
But, when asked whether he is relieved that a higher gold price can help reduce his company’s leverage, Froneman says the company isn’t staring down a debt crisis at all.
“Listen, we have restructured our business to essentially be cash flow positive or cash flow neutral at worst, across the entire spectrum,” he says.
But he concedes that the two parts of the business “where we haven’t quite got there” are Stillwater and Sandouville.
In the US, Sibanye is making a loss of between $30m and $40m per year, but, nonetheless, he argues this business “is very strategic in terms of our positioning and we have a plan to get it to being cash flow neutral”. Sandouville is also on track, he says.
“So, contrary to belief, we are not bleeding to death as a company.”
Froneman says Sibanye is “comfortable” with a situation where its net debt is equal to one times its earnings before interest, tax, depreciation and amortisation.
“We’re just over one and we can go up to 3.5 with our covenants. The company is actually in a good space,” he says.
Atypical CEO-entrepreneur
Froneman’s retirement from Sibanye is a major moment in South African mining, given that not only was he one of its more relentless dealmakers, but he was perhaps the most entrepreneurially-minded of all his peers.
He says, however, that there was always a method to his dealmaking madness.
“So often we make an investment and people think we’re mad,” he says. “But when you can make an investment that is obvious and everyone is aligned, there’s no value to be created. You’ve got to do something different.”
That mindset saw Froneman pounce on Anglo Platinum’s unwanted Rustenburg platinum mines during the 2016 downturn, when parent Anglo American was forced into selling assets to take a chunk out of its mountainous debt.
In 2019, at the height of aggression from the Association of Mineworkers and Construction Union (Amcu), Sibanye bought the teetering Lonmin for next to nothing too; a deal that veteran analyst Peter Major describes as “genius”.
Mark du Toit, the director of OysterCatcher Investments, concurs. “I think that Neal did very well to manage through very trying times with the militant Amcu union in 2019. And I think this period led to him looking outside South Africa for growth opportunities,” he says.
Du Toit says Froneman had the risk appetite to buy businesses at the bottom of the commodity cycle, but he was “rewarded for it when the cycle turned positive”.
Of course, this sort of risk appetite means you can get it badly wrong too — like wading into nickel at what may have been the peak of the market, in 2022. But, when Indonesia flooded the market with the metal, the price fell.
Froneman said no-one could have foreseen Indonesia doing what it did. “And then it was too late – you’re already in. Those things happen but then it’s a matter of riding it out.”
But he is adamant that Sibanye has always done its homework properly on the metals it enters, eyeing long-term trends that the group believes will pan out. It’s not simply about buying into a commodity and hoping for the best.
“It’s a matter of managing the business to ensure that when the trend works in your favour you are well positioned. Our job is to manage risk and if you get that right, you’ll go through bad times and prosper.”
Asked whether he’s happy with the mix of commodities Sibanye-Stillwater has now, Froneman says, ideally, he’d have wanted more battery metals, but the “bubble” that came about just after Sibanye’s entry into that niche made deals too pricey.
“This current downturn is an opportunity. So once we finish Keliber, we will again start looking to some expansion of lithium and others in the right jurisdictions. You’ll say lithium is depressed and I’ll agree with you, but that’s exactly the time to buy more,” he says.
Nothing has changed in the technology to suggest lithium won’t be required in batteries in future, and Europe and the US remain buyers, he argues.
But Zunckel, for one, remains unconvinced.
“Investors would be better off creating a portfolio targeting the battery metals theme themselves and purchasing specialty companies or ETFs that provide cleaner singular exposure to nickel, copper [and] lithium,” he tells Currency.
Major, who calls Froneman a “hero” for keeping so many mines in business that may otherwise have permanently closed, is also negative on keeping Stillwater.
“If only he could have sold it or unbundled it at those insane heights he would’ve been a genius to rank with the best of the best. He rode it up, but he rode it all the way down too,” Major says.
Hedging South Africa’s risk
For Froneman, the decision to invest offshore is tied up with a more existential question about South Africa’s trajectory.
“We have consciously decided to internationalise, and yes, it’s more difficult but there is a future there. Right now I have to ask what the future is inside South Africa,” he says. “I don’t want to see South Africa go down the tubes, but when it does go down the tubes at least we have redistributed our risk.”
South African companies, he argues, “can’t just play the game locally – we have to win the game of business all over the world”.
While the gold mines will probably be exhausted in a decade, Froneman says the company will have a portfolio of critical metals in Europe and the US, plus one of the biggest recycling businesses in the world. “We won’t be a dinosaur, we are a modern mining company and it will become a lot more visible,” he says.
The one deal that did get away was Froneman’s bid to merge AngloGold, Gold Fields and Sibanye in 2021. He still classes this as his single greatest disappointment.
“Unfortunately, that didn’t get any traction, though to me that would have put South Africa on the map. We would have been one of the biggest mining companies in the world producing large amounts of gold and PGMs, and it would have been a wonderful statement.”
Still, there haven’t been too many disappointments over Froneman’s 40-year career — other than Uranium One, the company that he once headed, which listed in Canada and then “perished in spectacular fashion” when uranium prices collapsed in 2008.
He started out as a junior mining engineer on Gold Fields’ Kloof mine, which had sponsored his bursary to study mechanical engineering.
Stints at Harmony Gold and JCI followed, before he became CEO of junior miner Aflease – a combination of former minnows Sub Nigel and New Kleinfontein. Aflease became Gold One, and it was out of Gold One that Sibanye was born in 2013, when it bought the Kloof, Driefontein and Beatrix mines that Gold Fields no longer wanted.
You could hardly call Sibanye-Stillwater a start-up, but its scrappy character and appetite for risk is central to the company’s culture.
“We’ve had to build up from nothing and [that] creates a team of people that have a very different character – they can move mountains and deal with challenges. We are considered off the wall, we do things differently and we don’t have a parent that tells us how to run our business,” says Froneman.
Whether his successor Stewart will carry on with the same strategy remains to be seen; Froneman believes he will. “The strategy is not mine, it’s the company’s and is supported by the board,” he tells Currency.
As for the value created over his tenure, Froneman argues that Sibanye has “far outperformed” its peers, whether in gold or PGMs.
That is mostly true. Umthombo’s Zunckel calculates that Sibanye has delivered an annualised share price return of 8.6% per year since 2013. Including dividends, this rises to 13%.
That is well ahead of Impala (on a staggeringly poor 0% return per year), Amplats (8.4% per year), Northam (10.8%), Anglo American (8.1%) and Glencore (4.9%).
But thanks to this latest gold run, it is the pure gold miners that have delivered most value to shareholders over the past 12 years. Harmony, for example, has returned 13.7% including dividends per year over this time; Gold Fields has made 14.1%; and the minnow Pan African Resources has delivered 16.7% per year.
That’s not to say it’s been smooth sailing – at all.
Major says Sibanye is the perfect cyclical stock. “It is great to buy when it’s way below the [JSE’s all share index] but you have got to sell when it’s above the Alsi because it’s not going to stay there,” he says.
For Major, Froneman’s greatest legacy is probably keeping mines alive that may otherwise have closed – and mineworkers employed – with no thanks to the ANC government’s repressive mining policy of the past two decades.
Rattling sabres
Froneman has also been probably the only truly outspoken mining boss in the face of a government that has – despite its messaging – strangled investment in the industry since the first draft of the Mineral and Petroleum Resources Development Act in 2002 which, according to some critics, virtually nationalised the country’s mineral wealth.
“I’m really angry to see how our country has been destroyed by bad policy and the ANC,” says Froneman. “I say it as it is – I don’t know any other way to deal with a problem.”
“Being politically correct just creates confusion. You have to be blunt. You have to deal with issues. I blame business to a large extent for where we are today – they could have done so much more.”
Asked where he thinks South African mining is now, Froneman says the sector – not to mention the country – is in desperate need of an overhaul.
“What we require is to stop being communists, stop being socialists; develop investor-friendly reforms that embrace capitalism. None of these other things – like dividing the pie and redistribution, work,” he says.
Froneman blames a slew of bad state policies for the absence of real fixed-term investment in the economy.
“We have race-based legislation – it’s bad legislation. We have bad foreign relations policies. And our capital markets are in the West – we don’t get money from China, we don’t get money from Russia, we don’t get money from Iran,” he says.
“Until those things change you will not see a South Africa that prospers because no-one wants to invest under these conditions.”
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