Most of South Africa’s gold mining companies have been struggling over the last few years, faced with the headiwnds of rising electricity prices, increasing labour costs and labour unrest, volatile world markets prices, and the rising complexity of getting South African gold out of the ground. However, at least one company is bucking the trend – Sibanye Gold. Sibanye’s share price has enjoyed a steep rise over the last year, and the company has delivered strong results, growing production while containing costs. All in all, it’s a rare cheery tale in a gloomy sector, and according to CEO Neal Froneman, there’s more to come, as Sibanye’s key assets have a life of at least 15 years left in them. Good news indeed for those looking for bright spots in the SA mining sector. – FD
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ALEC HOGG: Sibanye Gold’s interim gold production increased as costs fell. Chief Executive Neal Froneman joins us to have a closer look at the numbers. The first story – the big story – about Sibanye is your shares have been going up, while everybody else’s shares in the sector, has been going down – 56 percent in the past year – that’s pretty good going, Neal.
NEAL FRONEMAN: Yes, and it’s very pleasing, but I think it’s also on the back of… As we’ve been able to provide the market with guidance and results, they’ve recognised that there’s potentially, large earnings coming through. Of course, today was a special day where we could declare a very decent final dividend.
ALEC HOGG:  As a new company, listed on the market… It must be interesting talking to you and your old pal Bernard Swanepoel, because he wanted to get his hands onto these assets, which you’re now running. I guess, all those years ago he probably had a good idea and you’re now bringing it to fruition.
NEAL FRONEMAN: I think we’ve all had a good idea. We did due diligence on Driefontein as Gold 1, and we recognised the potential. I stuck up my hand. I actually volunteered for this job, based on the potential that I saw and all credit to Nick for unbundling the assets because they require different focus, and I think that focus is delivering what you see today.
ALEC HOGG:Â Â Was South Deep ever a possibility of coming into Sibanye?
NEAL FRONEMAN: It’s a real quality asset; certainly, we would put up our hands if it became available.
GUGULETHU MFUPHI: Looking at your gold reserves, those are also up by 46 percent – quite a positive number. How much longer can you keep on mining for?
NEAL FRONEMAN: This is really the first pass, and for the layman we had a 22oz measured resource. That’s a resource category of high degree of confidence. We’ve only converted another six million out of that measured resource, which has taken our thirteen-point-five million ounces reserve to just under 20, which is the increase you referred to. As I say, this is our first pass. This is a marathon, so over the next few years I think you will see further increases, maybe not to the same extent per year. However, the bottom line is if you have reserves, they underpin your ‘life of mine’ production profiles. Our biggest challenge right now is that our dividend yield of five-point-five percent is seen as probably required, because we’re short life. The message to the market is we’re not short life and therefore, we should rerate as they see life and extension of life.
ALEC HOGG:  One and a half million ounces per year at the moment – roughly – and twenty million ounces of mineable reserves…so you have at least 15 years to go.
NEAL FRONEMAN: That’s correct. We’ve always said – but we haven’t been able to demonstrate it – that we believe these assets have 15 to 20 years’ of life and therefore, I think we’re in for a significant rerating. The share price as you’ve said has run hard, but we’re still undervalued as compared to our peers; metrics like PE ratios, enterprise values per resource and production…
ALEC HOGG:  And that’s under the current operation of mines. One would have thought that at some point in time, new technology/new opportunities are going to make many of those reserves that are presumably, unworkable at the moment – come into your radar.
NEAL FRONEMAN: They are. I personally don’t believe they’re really there in the short term. I think there are simple additions to mechanisation. Underground: certainly, there are technologies being worked on by companies like Anglo Gold. We are doing similar things, but on a much smaller scale, and we really hope they work because it would open up huge amounts of reserves that are not mineable because they’re dangerous and they’re deep.
GUGULETHU MFUPHI: You were also recently in talks with Wits Gold to acquire one of their mines. How far are you in those discussions?
NEAL FRONEMAN: We’re well advanced, the shareholders’ circulars have gone out, we have Competition Commission approval, and in fact, for both our transactions the acquisition of the Cook assets and Wits Gold, we’re only waiting for the Section 11 approval from the DMR.
GUGULETHU MFUPHI:Â What is Section 11?
NEAL FRONEMAN: It’s a transfer of the mining rights – to us – because they now sit in a different vehicle.
ALEC HOGG:Â Â Once you secure those acquisitions, what does that do to your reserve base?
NEAL FRONEMAN: Well, they’re certainly part of a life extension. The whole strategy around the acquisition of Wits Gold was really about securing the future of Beatrix. Wits Gold did have an option to acquire Bernstein, and that’s in addition to securing the life of Beatrix and something that we also find quite interesting.
ALEC HOGG:  These are again, a good set of quarterlies that you brought out; as we said right in the beginning, the production’s going up and reserves have been improved. On the other side however, we still the labour issues. You’ve been outspoken.
NEAL FRONEMAN: Yes, and I continue to be outspoken. I think it’s absolutely necessary. Firstly, we have to be firm with organised labour. In the past, we haven’t been firm. We cannot as an industry, make short-term decisions to avoid strikes. We’ve done that for too long and you can see where the industry has ended up. It means that we make unpopular decisions. To ensure that we don’t lose our employees in that process, we’ve really had to work very hard in terms of winning their hearts and minds – in terms of the future of their jobs.
ALEC HOGG:  It’s all about leadership, isn’t it? Leadership is not easy.
NEAL FRONEMAN: It certainly isn’t. Certainly, under circumstances like these where some of this is unpopular, it goes against the grain of government policies etcetera, but it has to be said.
ALEC HOGG:  Neal, shareholders love you: 56 percent up when everyone else is falling out of bed. What are you able to tell them? What have you been able to tell them with the release of these quarterlies that will keep them encouraged?
NEAL FRONEMAN: Well, I think the first and foremost issue is that we’ve delivered on exactly what we’ve promised. A year back, we said we’re going to make Sibanye a benchmark gold yield vehicle. We are currently, even with the latest increases in the share price, we are sitting at yields that are well above the rest of the gold industry, and we had to do that by making sure the operations work well. Going forward, I think shareholders want to know that dividend is sustainable. Firstly, our commitment is to continue to focus on using our free cash to (1) pay dividends before we invest in capital projects, any acquisitions that we make – and we are entrepreneurial – have to be earnings-enhancing per share, otherwise we undermine our own dividend policy. Fundamentally, of course, I think that’s all based on a solid operating platform and we’ve given them comfort in that. We have the capacity to keep the mines running. We have separate capacity to grow the company, and our policies regarding dividends and our philosophies underpin the strategy of the company.
ALEC HOGG:Â Â Neal Froneman is the Chief Executive of Sibanye Gold.
