Sibanye-Stillwater: All about prudence and pulling levers
CEO Neal Froneman has overseen the raising of R1.7bn in fresh capital, all the while keeping an eye on Amcu
Sibanye-Stillwater tapped shareholders again to raise capital this week, in the event that it becomes embroiled in a labour standoff at its platinum mines, as workers belonging to the Association of Mineworkers and Construction Union (Amcu) enter their fifth month of strike at its gold operations. While the book-build was well supported, Sibanye’s shares sank 19% on the day of the cash call. CEO Neal Froneman explains how he viewed the market’s response:
Investors would not participate if they thought there were balance sheet issues. What you’re seeing after a capital raise, especially when a significant proportion are hedge funds, is some of those shares wash out into the market as they take short and long positions – that’s almost to be expected.
So the fall didn’t dismay you?
Not at all. We issued 5% of our share capital so you would expect the price to go down. I think in a week or two we’ll be back to normal. In terms of the balance sheet, we’re in a very good position: a capital raise has bought another R1.7bn into our funds; we’ve got some other levers we will pull. We’ve got other financing pipelines that we’re looking at.
More importantly, commodity prices are very strong and so our PGM (platinum group metals) business is generating a significant amount of Ebitda [earnings before interest, tax, depreciation and amortisation], especially in the US where about 50% of our revenue comes from. We will deleverage significantly towards the end of the year. What we are doing is being prudent.
I understand that, but a company that has plenty of cash doesn’t always have to pull ‘levers’ or look at equity raises.
Even with the strike in gold we are significantly cash flow positive and we are building some more flexibility into our balance sheet because some of those cash flow streams may come to a halt with a strike in platinum.
Equity capital is expensive, you dilute shareholders.
It’s not expensive, absolutely not. We’ve diluted shareholders at a position where our share price is reasonably strong. We didn’t have to raise cash in a deeply discounted fashion, we raised it at R15.50 so I think that is completely different to what you’re suggesting.
On the strike, Amcu labelled your recent verification process (that shows it’s not the majority union) as unfair. Was it objective?
We’ve said Amcu’s not the majority for probably three months already and [the verification agency] just confirmed that. They are highly respected as an independent authority. We did not interfere in the process. Clearly [Amcu] don’t want the results that have come out, but this has been a long time coming. It’s not convenient, this is business. We’ve got to end the strike, we’re not going to capitulate, we’re not going to abuse shareholders and pay Amcu something to come back to work.
Do you see Amcu coming round? So much has been staked by union boss Joseph Mathunjwa.
He won’t come round, he’s dug such a deep hole he can’t get out of it. There are other unions whose reputations are at stake here and we’ve got to make sure the company doesn’t get abused and we’ve got to make sure that our employees are treated in the best way possible. That’s his problem. Our concern is employees that have not earned anything for five months, how to bring them back and integrate them. We have made it very clear from day one of this strike that we are not going to amend the wage agreement. We’ve now got ourselves a very strong legal position and we need to see it through. We’re not going to end up with a negotiated settlement here, that’s very clear to me.
A lot of companies haven’t drawn this line in the sand. Is it lonely out there? Or is this what has to be done?When you’re busy with this everyone is sitting behind you, but very quietly, they don’t stick their heads up. This is clearly a union that abuses members and resorts to violence and tries to hold us hostage with threats of Marikana. Now clearly nobody wants those sorts of issues and we’ve done everything we can to protect our workers. This is actually re-setting a relationship in a way that is going to be more balanced going into, say, platinum wage negotiations and any other negotiation in the industry. This is a national issue. We have a labour relations act that is unbalanced, it’s not business-friendly. In our way we’re playing our role so that we can make long term decisions. Are you fearful, given Amcu’s strength in platinum, that wage talks could be a real fight?I’m not fearful. We go into every wage negotiation knowing what is acceptable in terms of the long-term sustainability of the business, what is fair. You can’t be fearful in business, you’ve got to do the right thing. Am I concerned? Absolutely, but if it results in further industrial action, so be it. We can’t be bullied.Do you ever see the industry bridging the ideological divide between bosses and workers?I do, and it’s going to take a process. The real issue is a lack of trust and there has to be a rebuilding of trust.
Do you feel vindicated by palladium’s rally, or is it a bubble that ends in tears?No,the fundamentals of the palladium price haven’t changed. I think we’ve seen a healthy correction but the fundamentals of long-term deficits are still there. What’s very pleasing is there’s a recognition that platinum is part of the solution in addressing that deficit and hopefully we will see the PGM basket price ratchet up. Stillwater, which is the only primary producer of palladium in the world, we bought for $2bn, it’s now worth $6bn. That’s huge value accretion for shareholders.