RYK VAN NIEKERK: The strike of around 24 000 workers at the gold mining operations of Sibanye-Stillwater has now entered its seventh week. The parties are at a stalemate as the unions are demanding a monthly increase of R1 100 while the mine is offering R850. The workers have already collectively lost more than R1 billion in wages. However, it has recently emerged from the company’s annual report that Sibanye-Stillwater’s CEO, Neal Froneman, has received remuneration of R300 million in its latest financial year. The bulk of this package was the proceeds of a share scheme amounting to R264 million. His basic salary and bonus for the period was around R20 million.
James Wellsted is on the line. He’s head of investor relations at Sibanye-Stillwater. James, thank you so much for joining me. Just firstly, what is currently the status of the negotiations?
JAMES WELLSTED: We’re still engaging with the unions, but we are at a bit of a stalemate. We met yesterday in a meeting with the unions that was facilitated by the minister of resources and energy, Minister [Gwede] Mantashe, and we will be meeting again on Thursday. But at this stage we haven’t really made too much of an advance. The unions are sticking quite rigidly to their demands. We have, over the course of the last 11 months that we’ve been negotiating, increased our offer about seven times to the current R850/month over three years. But the unions have been quite rigid in their demands and have not made much [of a] move at all.
RYK VAN NIEKERK: In percentage terms, what are the amounts on the table? What does the R1 100/month represent in percentage terms, as opposed to the R850 you’ve put on the table?
JAMES WELLSTED: It’s a little bit complicated because the different levels in the company earn different amounts. But essentially, if we look at entry-level employees where we are trying to close that gap between entry-level and obviously management level, the offer effectively amounts to about 7.8% in the first year, 7.4% in the second year, and 6.8% in the third year. The union demands are more like double digits, so close to 10% in the first year and over 9% in the next two years – well above inflation. We are obviously already having to absorb significantly higher-than-inflation costs, electricity from Eskom and other input costs.
So we really just can’t, as an industry, continue to give above-inflation wage increases.
RYK VAN NIEKERK: It seems like it’s going well in the gold sector and, as we can see from Neal Froneman’s package, where he really benefited from the increase in the share price and he received around R264 million worth of proceeds from that share scheme, I’m sure that does create some discontent among unions where on the one side the company’s pleading poverty and on the other side some of the execs are getting a lot of money.
JAMES WELLSTED: The performance of the company is being driven more by the PGM (platinum group metal) operations. As you know, we started off as a South African gold company with three assets in South Africa in 2013, and we’ve grown the business since 2016 significantly into an international diversified mining company. The gold assets are actually quite marginal.
The difference in the demands that the unions are making compared to our offer amounts to about R44 000/kilogram of additional costs, and that effectively would wipe out our margin at the gold operations and push them into a loss-making position.
That, again, would impact the sustainability of the operations, the life of the operations, and that would have implications for employment; it would impact other stakeholders who rely on the operations, like communities and suppliers and so on. So we need to consider all of that.
Mr Froneman’s remuneration that you mentioned – increases for senior management over the last couple of years have been fixed at inflation or around inflation, about 5% a year. But obviously, like most other listed companies and all industries, there is a component of variable pay which is also included and often linked to performance and meeting certain KPIs [key performance indicators] and return of value.
We obviously have performed very well in the last few years, so about R267 million of that amount was due to shares that had been awarded in 2018 when our share price was R11.44 and vested in March, 2021, when our share price had increased to R72. So that’s a 560% increase in value or the share price. Our market cap in the last 10 years has grown from about R10 billion to between R150 billion and R200 billion over the last couple of months. So there’s been a significant increase in value and that’s been reflected in the shares that Mr Froneman and other executives obviously were awarded as part of the incentive remuneration. We have offered the unions a profit-share arrangement for employees in the past, but that’s been rejected outright every time we’ve brought it up.
RYK VAN NIEKERK: So employees did not benefit from the increase in share price, according to you, because unions didn’t like the idea?
JAMES WELLSTED: They’re not really interested in negotiating or discussing profit-share arrangements.
Employees have benefited to some extent through existing employee share-option schemes, and also through other black-empowerment ownership structures that we’ve got at our operations. But when we negotiate with the unions, they are quite loath to include these kind of variable incentives in the discussions.
RYK VAN NIEKERK: But wouldn’t that make sense, because then everybody benefits from the spike in share price the company has experienced?
JAMES WELLSTED: As I said, we’ve tried to raise this. We think the solution to the challenges that we face is really to enter into a social compact with all stakeholders, government communities, our employees and the unions, and work together to secure the sustainability of the industry. But again, as I said, this is not always received with as much enthusiasm as we would think.
RYK VAN NIEKERK: Is there a difference between the remuneration structures of the gold-mining versus the platinum operations?
JAMES WELLSTED: Similar structures, but obviously the PGM operations have been quite profitable in the last year or two, so they would’ve benefited from bonuses. The gold operations – as I said, we’ve suffered various disruptions in the last couple of years including the five-month strike that Amcu called in 2018/2019, which has impacted on the performance of the gold operations. That would obviously have had an impact on remuneration at the gold operations.
RYK VAN NIEKERK: But still, the R300 million package is eye-watering, especially in the context of South Africa where our inequality levels are the highest in the world. Can you put that into context?
JAMES WELLSTED: We’re a global and international company. We are listed on the New York Stock Exchange.
We are competing on the global platform with other international companies and our CEO’s remuneration or executive remuneration is consistent with similar companies of that nature.
As I said, a large proportion of the amount that you mentioned, the R300 million, was due to value that we’ve added over the last couple of years. Our market cap has gone from R10 billion to over R150 billion. That’s significant value that’s been created, and we’ve grown the business into an international business. So that’s the result of that. I think going forward you have to ask whether the likelihood of us again increasing our share price by 560% is probably quite small. So the point about this kind of remuneration is that you do well when you add a lot of value, but if you don’t add value, you don’t do as well.
What the unions are demanding is increases that are above inflation that will now be fixed in our cost base for the life of the operations. So an extra R1 billion a year over a 13-year life – that’s R13 billion of additional costs that we’ll have to incur over the next 10 to 13 years of the life of the operations, and that’s a very different picture to a R300 million incentive that was earned through share-price outperformance.
RYK VAN NIEKERK: There is a lot of talk about executive remuneration in South Africa, and there are proposals on the table that there needs to be a formula which limits the amounts senior executives earn relative to the lowest-paid workers to reduce equality within companies. Do you have a policy on that?
JAMES WELLSTED: We don’t because obviously we, like any other company, need to attract appropriate management talent in order to ensure that we have a sustainable and viable business that can continue to create value. We are competing globally, we are not competing within South Africa, and I think this is the challenge that all South African companies are facing – the exodus of skills and experience from the country. So we need to remunerate people accordingly.
What we are trying to do is to reduce that gap, though. As I said, we’ve been offering above-inflation increases as we have done again in this round to entry-level employees in order to try and close that gap. But I think this is not a kind of debate that’s only happening in South Africa. It’s a debate that’s happening worldwide – and I’m not sure we are in a position to really give a comprehensive solution to that debate.
RYK VAN NIEKERK: Workers have apparently lost more than R1 billion in wages. They’ve lost that collectively, and that is a massive amount. I see that you’ve been quoted in the media [as saying research has been done] and believe that most of the workers want to return to work. On what did you base that research?
JAMES WELLSTED: We’ve had internal polls where we’ve had feedback from the workers. We’ve also seen a significant number of resignations from the NUM and Amcu – which are the striking unions – of employees who are not in favour or supportive of the strike. In fact, some of the unions held polls or secret ballots before embarking on the strike. We know that at Beatrix, for instance, as was announced by the CCMA, the NUM members actually rejected the strike and voted against it. But the leadership of the union decided to give us notice of the strike, even at those operations where it was voted against.
So that’s an indication of what we see, the lack of support from employees.
The reality is that this strike has now continued for almost two months and employees have basically lost three years of the benefits that would’ve accrued to them from the offer that we have made to the unions. So effectively they’ll get nothing over the next three years from the increase that we’ve offered.
That’s extremely unfortunate, because employees are the ones that are taking the brunt.
RYK VAN NIEKERK: How in the past have Sibanye-Stillwaters’s relations been with unions and workers?
JAMES WELLSTED: On the ground we continue to engage regularly, and we have, obviously, honest relationships and we work quite well together with the unions. But again, at the leadership level, there are often different agendas – different rationales for some of the actions that are taken. So we have had our issues. We obviously had a five-month strike at the gold operations in 2018 to 2019 that was called by Amcu, and eventually Amcu called it off after five months and accepted the offer that we had already agreed with other unions five months before.
So it has been characterised by a bit of confrontation, But on the ground we’ve been working quite well with the unions, the assets that we’ve acquired and turned around, and we’ve been running very smoothly and integrated very smoothly.
RYK VAN NIEKERK: And are those operations standing still at the moment? If so, what is the impact on the group?
JAMES WELLSTED: The gold operations are standing still. We haven’t produced from them since the strike began, and we locked employees out next the day. So there’s an impact, but gold is a smaller part of our group now since we’ve grown significantly into the PGM and now into the battery-metal space. Gold accounted for only about 6% of our Ebitda last year. So the impact is not as significant as it would’ve been some years ago when gold was a bigger part of our business.
RYK VAN NIEKERK: James, thanks so much for your time today. That was James Wellsted. Head of investor relations at Sibanye-Stillwater.