“In a way we did bet the farm” Froneman on the roaring success of Stillwater

CEO of Sibanye-Stillwater Neal Froneman took centre stage on last night’s BizNews Power Hour, with the veteran mining executive sharing his thoughts on the robust fundamentals driving the precious-group metals (“PGMs”) prices and the outlook for the commodity counter. Sibanye has had an incredible few years, reaping the rewards of concentrated bets on the PGM basket. Froneman is a renowned deal-maker, with the commodity bull having increased Sibanye’s market value 20-fold since its demerger from Gold Fields in 2013. Many South African chief executives should take a page out of Froneman’s book. Unlike many top local executives, Froneman’s interests are aligned with shareholders given his substantial shareholding in the business. – Justin Rowe-Roberts 

Neal Froneman on JP Morgan’s Jamie Dimon scathing comments on the work-from-home environment:

We have two models and both are predicated on ensuring people are safe and healthy. Operationally you can’t do it via a Zoom-like platform, you have to be at the rock face and your supervisors have to be present. There has to be leadership. That’s where we have very stringent protocols; our Covid rates in the mines are one third of what is in the community. It shows that protocols around social distancing and sanitising actually work. But, where I disagree with Jamie, is that I don’t believe there is a post-Covid environment. Those jobs that can be done in a corporate environment can actually be done better at home. There are aspects of culture and interface, but if that’s your drive you can arrange very focused sessions to achieve those things.

On ‘betting the farm’ on the Stillwater and Lonmin deals

We did it in a very thoughtful way. It started with us understanding our core competency which was really about running medium-to-deep labour-intensive mines in South Africa – we know how to prosper in this environment. The gold mining industry in South Africa is ex-growth so that wasn’t a place we could grow. PGM mining is similar but the market is completely different. We brought in a number of experts to make sure we understood the supply and demand characteristics of these metals and we developed a fundamentally robust view of the future of PGMs.

What you don’t know is when the best time to make that move is, but we developed a strategy which involved some geographical diversification cause of the issues we face in South Africa. We moved very quickly; we were actually handling two transactions at the same time – Lonmin and Stillwater. We took a backset from Lonmin as our view that there was no other serious buyer and it was going to get cheaper. We had a supportive board and a fundamental understanding of those commodities. We moved quickly (on the Stillwater deal) and in a way we did bet the farm. What nearly tripped us up were the unexpected safety incidents we had in 2016.

On a phenomenal Q1 performance and prospects ahead:

Our share price has stagnated a bit in the last few weeks but we’ve generally outperformed our peers. I think there’s a little bit of investor concern whether this is the top of the market. Personally, I don’t believe it because the fundamentals looking forward are more robust for these metals. We are not able to catch up with the earnings, if that makes sense. Our share price is lagging the increase in our earnings. The market actually wants to see those earnings before they give you credit for it, especially when you’re coming out of a difficult time as we have, highly leveraged and Covid disruptions and so on. What you’re seeing is the earnings potential – $20bn EBITDA in Q1 and commodity prices have increased so far in Q2.

On the next chapter for Sibanye-Stillwater:

We’re very focused on capital allocation. Organic growth projects, building up reserves to offset some of the long-term debt we have, dividends are predictable and committed to and accounted for. Post that, it becomes buying back some of your debt but we don’t want to be completely un-geared. Share buybacks play a role; if we weren’t in a closed period we could well be buying back shares today but we [are] not quite ready and we [are] in a closed period. Then there’s M&A and external growth, just like we entered the PGM business, we took two years to do the work I described. Acquisitions have to be value accretive.

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