Sibanye-Stillwater’s CEO Neal Froneman had some sobering words for policy-makers at the Joburg Indaba this week.
2014 marked SA’s descent into a dark period of corruption, from which it is now beginning to emerge. “We need to grow outside of SA. We’re not leaving SA. We are committed to investing R4.5 billion a year in sustained capital in SA. But the investment climate in SA is not yet conducive to investing in projects with a 10 year time horizon.”
The Labour Relations Act needs to be more business friendly, and until that happens investors will hold back. Government needs to focus on service delivery, and understand the role of business in the economy. “That’s one reason why we bought Stillwater in the US,” said Froneman.
The gold and platinum group metals company has been stung by a particularly gnarly strike involving the Association of Mineworkers and Construction Union (Amcu), which broke ranks with rival trade unions last year in its demand for higher pay. Amcu had spent five months helping negotiate the agreement, then refused to sign it just before Christmas last year.
Last week the Labour Court ruled that the wage agreement reached between the company and three other trade unions could be extended to Amcu and other “non-parties” to the agreement. The company is now proceeding with an independent union verification process to confirm the three trade unions (National Union of Mineworkers, UASA and Solidarity) comprise a majority, which should bring an end to the Amcu strike.
Froneman also suggested it might be time for Amcu to choose new leadership with a more constructive approach to labour relations. Asked whether the Labour Court ruling would break Amcu, Froneman said it was not democratically run, but at the same time he did not want to see a weak trade union. “We want them (Amcu) to recognise that we are managers appointed to look after the interests of all stakeholders.”
Sibanye-Stillwater is a unique blend of platinum group metals (PGMs) and gold. The gold mines are ageing, though decent quality, comprising Beatrix, Kloof, Cooks and Driefontein.
In 2016 it acquired Aquarius Platinum as well as the Rustenburg platinum asset of Angloplats. In 2017 it acquired the US operations of Stillwater, based in Montana. and composing two operating mines and metallurgical plant. Stillwater is the sole primary producer of palladium in the world. Elsewhere, it is produced as a by-product of PGM production. It is also in the process of acquiring Lonmin, which will allow for consolidation of operations in North West province and gives Sibanye-Stillwater additional metals processing facilities.
The Stillwater acquisition in the US was a brilliant call, coming as it did just before the palladium price went parabolic, reaching $1 500 an ounce last December. The platinum price has been going in the opposite direction, though the two metals are conjoined and there is speculation that platinum – and gold – may be about to share in some of palladium’s shine. Platinum is used in making catalytic converters for diesel cars, where sales volumes are dropping (partly because of emission tampering scandals). Palladium is more used in petrol-engine cars, with demand being driven by tighter environmental regulations.
In 2008 one ounce of platinum used to sell for five times an ounce of palladium. Now it sells for 57% an ounce of palladium. Sibanye saw the looming supply deficit in palladium, and Froneman says he believes the price will go higher still. “We’re bullish on palladium up to 2025, possibly even to 2030,” says Froneman.
The Stillwater acquisition was financed with whale-sized debt of $2.6 billion (R38 billion), which is one of the drags on the Sibanye-Stillwater share price. The strike in the gold sector is another. The blizzard of acquisitions in the last few years has also taken a while to digest. But with the strike likely to end, and the palladium price through the roof, the fog of bad news should clear and allow a little sunshine into the share price.
Just as Sibanye saw opportunity in Stillwater that others did not, Froneman now sees opportunity in batteries – specifically battery metals. This explains its recent acquisition of SFA (Oxford), which provides research and intelligence on precious metals and battery materials.
The future of motorised power will involve electric power trains, powered by hybrids, fuel cells or batteries. Sibanye is already well positioned in gold and PGMs, but not in battery metals.
The group has a strong base in SA, but has little option but to grow outside SA in the future, says Froneman.
Sibanye share price
Palladium price in USD