Sibanye puts Montana mine on care and maintenance — H1 earnings sink, shares soar as rights issue ‘muted’

12 Sep 2024

Sibanye’s Stillwater West mine in Montana will be put on care and maintenance to prevent it from chowing cash. The company made the announcement as it unveiled an interim loss of R7.1bn. But its share price soared as CEO Neal Froneman made it clear that a rights issue is off the table. And Vladimir Putin unexpectedly helped its share price as well.

Ahead of the unveiling of Sibanye-Stillwater’s interim results on Thursday, there was some market chatter that it might need to announce a rights issue to shore up its balance sheet.

As the company had previously flagged in a trading update, it posted a loss of R7.1-billion for the six months to the end of June versus a profit of almost R7.8-billion for the same period last year. That loss includes a whopping R7.6-billion impairment on its operations in the US state of Montana.

But CEO Neal Froneman made it clear that a rights issue was not an option. Among the measures announced to shore up its balance sheet was the placing of its cash-burning Stillwater West mine in Montana on care and maintenance, a move that will also take 200,000 ounces of palladium production out of the market.

The upshot was that Sibanye’s share price soared almost 10% on Thursday. Its cause was helped by comments from Russian President Vladimir Putin that Russia should consider limiting exports of key metals, which sparked a rally in a range of prices including for platinum group metals prices (PGMs) as well as for metals producers.

Sibanye’s share price, it must be said, has also been near record lows – partly because of the prospect of a rights issue, but mostly because of the collapse in the past couple of years in PGM prices – and so it might signal that a bottom has been reached on that front.

“The biggest concern was that our balance sheet is weak and that we will be embarking on a discounted rights offer. And the markets saw exactly the opposite. In terms of balance-sheet strength and liquidity we’ve added R25.2-billion to our balance sheet,” Froneman told Daily Maverick in an interview.

“The cost of equity is very significant,” he said. During the presentation of the results Froneman pointedly said that talk of a rights issue was now “muted.”

Stillwater West mine

Making the move on the Stillwater West mine will also help to solidify the balance sheet.

Sibanye Gold changed its name to Sibanye-Stillwater after it acquired palladium-rich operations by that name in the US state of Montana in 2017 for $2.2-billion.

In subsequent years, that looked like a steal. Within five years, the transaction had paid for itself, and in 2019 the operations accounted for half of Sibanye’s Ebitda.

But a crash in the price of palladium over the past couple of years from record peaks of close to $3,000 an ounce to below $1,000 an ounce turned the operations from cash spinners into cash burners.

Read more: Once a wellspring, palladium-rich Sibanye-Stillwater’s Montana mine now breaks the bank

Sibanye has managed to whittle down the costs of the Montana operations to $1,350 an ounce from more than $1,850 an ounce last year, but with palladium’s price mostly trending below $1,000 an ounce this year, that meant they were still chowing plenty of cash.

The Stillwater East and Boulder mines in Montana will continue to operate. The ultimate aim is to get the costs down to below $1,000 an ounce. A fundamental review is being undertaken in this regard.

Restructuring measures have also helped to boost the performance of the company’s gold and PGM operations in South Africa and the Marikana mine it acquired from the now defunct Lonmin has emerged as a star performer even at current prices.

“Marikana is going to be the mainstay of the business,” Froneman told Daily Maverick.

This is in some ways ironic.

Marikana was acquired from Lonmin, a company that had embarked on numerous rights issues as its fortunes sank.

It is now one of the few current jewels in the asset crown of Sibanye, a company that at least some in the market had anticipated would need to follow the same route, not least because of the capital it needs to spend on its various projects in battery metals around the world.

Sibanye is perhaps not out of the woods yet and a Gold Fields spin-off that was once seen as a dividend play as it extracted gold from older South African operations that did not require much capital for expansion is currently not a paying one.

But prospects of a looming US rate cut and Putin’s remarks are combining to at least start a rally of sorts in PGM prices. Sibanye’s full-year results might just look better. DM

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Stillwater West mine