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Sibanye bets big on lithium demand rising

‘The real demand for battery metals is only beginning. I think you can see a doubling or even a tripling in the lithium price over the next four or five years, which is why we are making our entry now’: CEO Neal Froneman.

FIFI PETERS: Sibanye-Stillwater is a mining company that is investing heavily in the battery materials business. Its latest deal is valued at around $419 million, which is around R8 billion. It was in a joint venture in a lithium mine in Nevada in the US. The deal is still subject to approvals.

To hear why the company is investing so heavily in battery materials [we chat to]  Sibanye-Stillwater CEO, Neal Froneman. Neal, thanks so much for your time. You have clearly marked this as an important sector for Sibanye’s future. Help us understand exactly why you think now is the best time to act.

NEAL FRONEMAN: Certainly, and greetings to everybody. We entered the PGM (platinum group metal) business after doing very detailed research on the future of PGMs, and we still believe very strongly in PGMs.

But once we got to understand the PGM business, we also got to understand that battery electric vehicles were going to make significant inroads into the mobility market. Based on that, once we had completed our PGM strategy we acquired SFA to launch our battery metal strategy. SFA is a research organisation helping us develop our view on battery metals and battery chemistries.

Lithium has come out as one of the more important metals that are required, and hence you’ve seen us take two steps to buy lithium assets, one in Finland and then of course the one you’re talking about now in Nevada in the US.

FIFI PETERS: But are you not investing at quite a high point in the cycle here, where we have seen the price of many minerals going through the roof? I’m just wondering if you’re not paying a lot more for these mining companies as a result of the timing in which you are choosing to invest.

NEAL FRONEMAN: I don’t believe so. I think that certainly the prices of all commodities have gone up, but the real demand for battery metals is only beginning. I think you can see a doubling or even a tripling in the lithium price over the next four or five years, which is why we are making our entry now. Of course, it’s flavour of the month and there’s a lot of competition and there are people who are going to pay over the top, make mistakes, and buy the wrong projects.

We’ve been very disciplined. We’ve turned down many, and we are very selective as to which markets we want to supply. The US is one that we are particularly interested in because there is a shortage of lithium projects in that region as well.

FIFI PETERS: And, I imagine, an abundance of potential. Could you speak to us about what you are potentially seeing on the ground there in the US, and what it means for Sibanye-Stillwater in future?

NEAL FRONEMAN: As you know, we have a very big operating base in the US at the moment. The best way I can describe it is that we are the biggest taxpayer in Montana based on our PGM business there. So that gives you an idea of the scale, or maybe it gives you an idea of the inefficiency because we pay too much tax; but we’ve got good accountants. So that’s not the reason.

FIFI PETERS: Well, you’re making a lot of money and you’ve got honest accountants – and that’s the reason. (Chuckling)

NEAL FRONEMAN: Absolutely. But the US is a very large market, with well in excess of 300 million people; and it is a market that is going to transition under the guidance of President Biden into a much greener country – and we can see Americans are very sincere about doing that.

Finding North American lithium for North America is key, because Covid has shown that supply chains have been severely disrupted because of the global economy and countries wanting to become more dependent on their own resources, and we are benefiting from all those aspects coming together.

So a wonderful market. This is a great lithium project. It’ll be in the lowest quartile, if not the lowest cost producer, because it’s got a boric acid by-product. It’s long-life, 26 years’ life, so it’s got scale. And it’s shallow and very close to some of the biggest battery manufacturers in the world. It’s an ideal situation, vey well positioned.

FIFI PETERS: I was speaking to James (Wellsted), your spokesperson. I remember when you made your first acquisition in the battery material space, I asked if you had called Elon Musk, whom we know is working quite heavily in the electric-vehicle space. He said no at the time and I’m just wondering if that’s changed now with this new acquisition, Neal?

NEAL FRONEMAN: No, we still haven’t called him. I think when we have a product, if they haven’t called us by then we will certainly call them. That’s a very logical target but there’s a lot of water that still has to flow under the bridge.

FIFI PETERS: Talk to us about that, because I imagine that you are speaking specifically to the approvals that this deal still needs to get over.

NEAL FRONEMAN: Yes, exactly. There are four permits required. Two permits have been issued. Obviously anything related to mining, especially in north America, is environmentally very sensitive. We are confident we will get the last two permits but, to safeguard ourselves, we’ll make payment only once we have those two permits. So that’s a bit of managing the risk. But we will certainly work with our partners and, of course, concerned environmentalists.

I think we have a very good track record of working with what we call our good neighbours in Montana, and I’ll look forward to engaging with those persons concerned about mining activity in this area, where there is a grass species called buckwheat that needs to be protected – and our partners have done a lot of work on that.

But certainly, if you can get around the table and talk you resolve issues. When you start following litigation these things get drawn out forever. I certainly don’t believe that will be the case.

FIFI PETERS: You’ve paid a leading dividend, and you’ve bought back your shares, but you’re also betting heavily [in] this space and one could say that the margin of error is quite thin. What are the major risks here, in your view?

NEAL FRONEMAN: We are not taking all our cash and betting the farm. We’ve shown we have a very good track record of creating value. We have paid for the building of our PGM business on P’s Ebitda alone. That is serious value creation – probably much more than dividends will ever create.

Nevertheless, dividends are important. We’ve conducted a buy-back and we are a company that is more diverse than most other producers. We are disciplined and will create value with a combination of dividends, buybacks, and value-accretive growth in the green metal space.

FIFI PETERS: Talking about litigation, today (September 22, 2021) news came out of South Africa’s mining sector, saying the court had voted in the industry’s favour, essentially upholding the ‘once empowered, always empowered’ clause when it comes to the mining charter and black economic empowerment. Is this a win for the industry in your view, and do you think it will encourage further investments in South Africa’s mining sector?

Read: ‘Damning’ high court judgment sets aside Mining Charter’s re-empowerment obligations

NEAL FRONEMAN: It’s definitely a win and there are two aspects to it. The one is you can’t change the rules looking backward. If government wants to introduce new rules, it’s got to be done looking forward. That’s the first thing.

The second thing is that the charter was always policy. It was a guiding document, it was not law, and in good faith the mining industry embraced it and did what they did.

This is a real wind for business. It shows you that the legal system works, and that will be very confidence-inspiring for investors.

However, should the minister decide to appeal this, it’s going to drag out the process and create further uncertainty, which will result in a lack of investment. So I hope, as hard as it is, he will recognise this as the second time we’ve had a ruling in business’s favour that we can move forward and create a much more stable and a growing environment, and then really address poverty and inequality, which is what economic growth will do.

FIFI PETERS: Of course. You introduced an element there to the argument that the government can appeal this – and I suppose we’ll have to see how they respond.

But, in the meantime, do remember us when you finally put in a call to Elon Must or when he finally puts in a call to you, and maybe give us the exclusive; you’re more than welcome to. On that note, Neal, thanks so much for joining the show.

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Toyota will be calling before Elon Musk if they haven’t already! Sibanya/Metair/ Toyota?? Not a bad JV partnership down the road…

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