Sibanye Stillwater Limited (Sibanye-Stillwater or the Group) (JSE: SSW & NYSE: SBSW - https://www.commodity-tv.com/ondemand/companies/profil/sibanye-stillwater-ltd/ ) is pleased to provide an operating update for the quarter ended 30 September 2020. Financial results are only provided on a six-monthly basis.
The operational recovery from the severe lockdown in SA in response to the COVID-19 pandemic has progressed well. The proactive and decisive response by the Group to address the COVID-19 challenges, while ensuring the integrity of the operating environment and the safety of all our employees has been pleasing. Comprehensive health and safety protocols, which were developed and implemented early on, have proven to be effective. In the interests of employee safety and operational continuity a more measured and phased production build up was deemed appropriate, particularly as employees from neighbouring countries and other provinces in South Africa were recalled.
The build-up to normalised production levels at the SA operations has progressed better than planned and the manner in which employees have been reintegrated into the operations without a notable increase in infection rates or operational disruptions, validates the more gradual recall and production build-up strategy.
By the end of Q3 2020, the SA gold operations had recalled approximately 92% of the workforce and achieved a production run rate of approximately 99% of planned levels, with the SA PGM operation having recalled approximately 88% of the workforce with a production run rate of 93% of planned levels achieved. By mid-October 2020, both the SA gold and PGM operations were operating at close to planned production rates with the employee complement close to pre-COVID-19 levels.
While the US PGM operations have continued to operate throughout the year, COVID-19 protocols, particularly compliance with social distancing requirements, has had an ongoing negative impact on productivity. The social distancing impact is most prevalent on transport to and from work, with employees living throughout the state of Montana and travelling longer distances to work than in SA. Restricted access to the operations has also affected shift arrangements and blasting schedules, resulting in a negative 8% impact on productivity.
COVID-19 infection rates at the SA operations, have declined significantly after peaking in July 2020 and while there has been a slight increase in infections in recent weeks, we do not anticipate a significant rise in cases or significant risk of the operations being closed. There has been a sharp spike in infections in the US and the state of Montana, and there has been a corresponding increase in positive cases at the US PGM operations. Again, we believe that our protocols are effective to manage the situation and ensure the safety of employees as well as the integrity of the operations insofar as practicable.
Elevated precious metal prices for Q3 2020, together with the 15% depreciation of the rand against the dollar during 2020 year-to-date, has ensured record prices for the basket of metals produced in SA and close to record levels in the US. Despite still being impacted by COVID-19 constraints during Q3 2020, the consistent operational performance coupled with high commodity prices, underpinned an exceptional financial result for the Group for Q3 2020.
Group adjusted EBITDA for Q3 2020 increased by 182% (or R10,056 million/US$545 million) to R15,592 million (US$922 million), compared with the same period in 2019. This represents another record quarterly financial result, surpassing the full-year Group adjusted EBITDA of R14,956 million (US$1,034 million) for 2019. This outstanding result reflects the significant value accretive PGM acquisition strategy embarked on from 2016.
Strong cash flow generation drove a further reduction in net debt during the period, despite the payment of the R1.4 billion H1 2020 dividend. Net debt: adjusted EBITDA (ND: adjusted EBITDA) at the end of Q3 2020, decreased by 40% to 0.33x from 0.55x at the end of June 2020. Subsequent to quarter end, the soft call option on the Convertible Bond (CB) was exercised and the CB was fully redeemed by 19 October 2020. On a proforma basis there is thus a further reduction in net debt of R11,164 million (US$666 million), resulting in ND: adjusted EBITDA declining on a proforma basis to 0.05x* at 30 September 2020.
Available funding increased by 19% from R23,799 million (US$1,372 million) at 30 June 2020 to R28,202 million (US$1,683 million) at 30 September 2020, comprising cash on hand of R15,151 million (US$904 million) (30 June 2020: R12,041 million (US$694 million)), committed undrawn facilities of R11,869 million (US$708 million) (30 June 2020: R9,000 million (US$519 million)), and available uncommitted overnight facilities of R1,182 million (US$71 million) (30 June 2020: R2,758 million (US$159 million)).
The strategic deleveraging which has been a primary focus since 2017 is now complete. At current commodity prices and the prevailing exchange rate, and with the SA operations having attained normalised production run rates, the Group is likely to continue generating significant cash flow. Following the resumption of the dividend in August 2020, the Group is well positioned to deliver superior total returns to shareholders. We will continue to maintain a disciplined approach to capital allocation, with the primary focus on securing the future of the company and delivering on our vision of superior value creation for all our stakeholders by prioritising dividends, share buy backs when appropriate, and smart, value accretive growth.
* Certain information presented in this quarterly update constitutes pro forma financial information. The responsibility for preparing and presenting the pro forma financial information, its completeness and accuracy is that of the directors of Sibanye Stillwater. The information is presented for illustrative purposes only. Because of its nature, the pro forma financial information may not fairly present the Company’s financial position, changes in equity, and results of operations or cash flows. The information has not been audited or reviewed or reported on by external auditors of the Company
SAFE PRODUCTION
The safe production performance for Q3 2020 was mixed, with another good quarterly safety performance from the SA PGM operations, offset by a decline in the safety performance of the SA gold operations.
The SA PGM operations delivered another fatality free quarter (mirroring the zero fatalities for Q2 2020), relative to two fatalities experienced in Q3 2019. On 13 October 2020, the SA PGM operations achieved a milestone of four million fatality free shifts with the last fatality recorded at Siphumelele shaft in March 2020.
Regrettably, after over 13 million shifts and almost two years without any fatal incidents, the SA gold operations suffered two fatalities during Q3 2020. On 8 August 2020, Mr Mfuneka Manikela, a contractor employee at Kloof Thuthukani shaft, was struck by ore flowing down the raise towards the tip while he was travelling in a centre gully to collect equipment. Mr Manikela was 36 years old and is survived by his wife. On 13 August 2020 Mr Bonginkosi Hlophe, a learner miner at Driefontein Hlanganani shaft, was struck by a gravity fall of ground while travelling above the strike gully. Mr Hlope was 38 years old and is survived by his fiancée and three dependents. Our heartfelt condolences go out to the family, friends and colleagues of Mr Manikela and Mr Hlophe. Both incidents are being investigated together with the relevant stakeholders and appropriate support has been provided to both families.
Despite these fatalities we believe that our safety strategy remains appropriate and we will continue to work towards our goal of zero harm. An improvement in serious injury frequency rate (SIFR), lost day injury frequency rate (LDIFR) and the total injury frequency rates of 12%, 20% and 23% respectively was achieved for the quarter, compared to the same period in 2019 for the SA gold operations. The focus on proactively managing leading indicators, in line with our Safe Production Strategy, will remain key in achieving ongoing continual improvement.
The US PGM reported a total reportable injury frequency rate (TRIFR) of 13 per million hours for Q3 2020, compared to 8.5 per million hours for Q3 2019. The majority of incidents were due to slips, trips and falls, which primarily resulted in minor lacerations.
OPERATING REVIEW
US PGM operations
Compliance with COVID-19 protocols continued to affect productivity at the US PGM operations. Logistical constraints (transport of employees) and the need to stagger shift arrangements and blast cycles to accommodate social distancing has resulted in productivity declines of approximately 8% versus pre-COVID-19 levels. For 2020 this is equivalent to a loss of approximately 20,000 2Eoz of mined production. Mined 2E PGM production for Q3 2020 of 147,835 2Eoz was in line with the comparable period in 2019. Production from the Stillwater mine (including Stillwater West and Stillwater East) of 91,940 2Eoz for Q3 2020, was 1% lower than for the comparable period in 2019. The East Boulder mine (EB) produced 55,895 2Eoz, 3% higher than for Q3 2019. Mined tonnes milled for Q3 2020 increased to 370,201 tonnes, 7% higher than for Q3 2019. Plant head grade was 13.6 g/t in Q3 2020, 6% lower than for Q3 2019. Head-grade challenges were largely attributed to lower than expected availability of higher grade stopes. Remedial action has been taken, and a recovery in grade is anticipated for Q4 2020. PGM sales for Q3 2020 of 143,716 2Eoz were 3% higher than for Q3 2019, largely due to the timing of production deliveries in Q3 2020.
All-in sustaining cost (AISC) of US$875/2Eoz for Q3 2020 was 11% higher than for Q3 2019, due to lower than planned 2E PGM production from the Stillwater mine complex and higher royalties and insurance. The average 2E PGM basket price for Q3 2020, was approximately 96% higher than the average basket price used for planning, with a consequential increase in royalties and insurance accounting for approximately US$51/2Eoz (6%) of the increase in AISC year-on-year.
The recycling operation fed an average of 25tpd of spent catalyst for Q3 2020. Recycling inventory normalised at approximately 200 tonnes following the accelerated processing of inventory in Q2 2020, although has increased subsequent to quarter end due to planned maintenance at the smelter early in Q4 2020. Ongoing COVID-19 related logistical and liquidity constraints constraining the global recycling industry, continued to affect recycle receipts during Q3 2020 although recycle receipts have begun normalising and are trending back to pre-COVID-19 levels. It should be noted that recycle receipts are region specific, with COVID-19 continuing to constrain global supply from some regions.
The 2E PGM basket price for Q3 2020 averaged US$1,898/2Eoz, 37% higher than for Q3 2019, driving the mined adjusted EBITDA margin to 62% from 57% in Q3 2019. Adjusted EBITDA for the US PGM operations increased by 55% year-on-year to US$191 million (R3,227 million), with the recycling operation contributing US$10 million (R170 million). After accounting for recycling, the blended adjusted EBITDA margin for the US PGM operations increased from 27% in Q3 2019 to 34% in Q3 2020.
Total capital expenditure for Q3 2020 amounted to US$69 million and was mainly spent on the Blitz and Fill the mill (FTM) growth projects (54% or US$37 million).
The Blitz project has been reviewed following the suspension of growth capital activities due to COVID-19 during Q1 and Q2 2020, which, as signalled in our H1 2020 results, further delayed the project schedule. The project review has indicated a delay of up to two years, with production from Blitz now expected to reach a steady state run rate of approximately 300,000 2Eoz per annum by 2024. Further detail on the project will be provided in Q1 2021, following the completion of the annual production planning cycle.The FTM project is on schedule and on budget, building up to an annualised production run rate of approximately 40,000 2Eoz per annum from December 2020. This project yields an estimated net present value of over US$460m at spot 2E PGM prices.
SA PGM operations
Despite ongoing COVID-19 related constraints at the SA PGM operations during Q3 2020, the ongoing production build-up was well managed, with costs kept under control. Primarily due to the progressive production build up during the quarter, 4E PGM production of 427,715 4Eoz for Q3 2020 was 18% lower than for the comparable period in 2019.
Costs were well managed with AISC increasing by only 5% year-on-year to R16,985/4Eoz (US$1,004/4Eoz), despite lower production and above inflation electricity tariffs and wage adjustments. Higher state royalty tax arising from the increase in revenue and profitability were partly offset by financial benefits accruing to the Marikana smelting and refining operations from the processing of Purchase of Concentrate (PoC) from Rustenburg, Kroondal and Platinum Mile following the declaration of Force Majeure (FM) by Anglo American Platinum (Anglo Platinum) during March 2020 after breakdowns at its converter plants (ACP).
The average 4E PGM basket price of R36,840/4Eoz (US$2,179/4Eoz) for Q3 2020 was 81% higher than for Q3 2019. This was primarily driven by significant price gains in rhodium (166%) and palladium (41%) period-on-period and a 15% weaker rand exchange rate. Rhodium and palladium respectively contributed approximately 42% and 30% of the spot 4E PGM basket revenue for Q3 2020, despite comprising just 8% and 30% of the 4E prill split. The record average 4E basket price combined with the steady increase in production post the COVID-19 lockdown, enabled a 217% increase in adjusted EBITDA for the SA PGM operations to R9,287 million (US$549 million) for Q3 2020, with the adjusted EBITDA margin more than doubling from 25% for Q3 2019 to 58% for Q3 2020.
Notably, the R9,287 million adjusted EBITDA generated during this quarter accounts for 72% of the R12.8 billion aggregated initial acquisition cost of Kroondal, Rustenburg and Marikana. Considering the higher prevailing average PGM basket price in Q4 2020 to date, combined with the return to normalised production rates during October, the outlook for Q4 2020 is extremely positive.
PGM production of 154,904 4Eoz from the Rustenburg operation was 14% lower than for Q3 2019. Underground production was 17% lower due to the ongoing build-up of production post the COVID-19 lockdown. This was partly offset by an 18% increase in production from the surface operations, which were less affected by COVID-19 related restrictions. AISC for the Rustenburg operation increased by 19% year-on-year to R18,864/4Eoz (US$1,116/4Eoz), primarily due to lower production, compounded by above inflation increases in wages and electricity tariffs, with higher royalty tax adding approximately R1,624/4Eoz (US$96/4Eoz). At normalised production levels and adjusting for the higher royalty tax, AISC would have been R14,813/4Eoz (US$876/4Eoz), well within SA inflation. The combined AISC margin for the Rustenburg operation increased from 31% for Q3 2019 to 59% for Q3 2020.
The Kroondal operation delivered another solid operational performance despite COVID-19 constraints. Despite being a primarily mechanised operation, a relatively higher proportion of Kroondal’s labour complement comes from neighbouring countries and other SA provinces which, due to COVID-19 travel restrictions on travel, resulted in a more delayed recall of employees, compounded by the need to quarantine or isolate returning employees. As a result, 4E PGM production of 53,299oz was 21% lower for Q3 2020 than for Q3 2019. Absolute costs were well managed, with above inflationary electricity tariff and wage increases being absorbed, but due to the lower production volumes, AISC increased by 18% to R12,805/4Eoz (US$757/4Eoz) year-on-year, considerably less than the 93% year-on-year increase in the average PGM basket price.
PGM production from the Marikana operation for Q3 2020 of 177,717 4Eoz was 26% lower than for Q3 2019. The production decline was again primarily due to the gradual production build, with the buildup at the conventional Marikana shafts slower than at the more mechanised Rustenburg operation. The Marikana operation also employs a higher proportion of foreign nationals and employees from other provinces than the Rustenburg operations, which further delayed the production build up. Restructuring of the Marikana operations and closure of three Generation 1 shafts, which produced 10,537 4Eoz for Q3 2019, also contributed to the decline in production year-on-year. AISC of R16,779/4Eoz (US$992/4Eoz) was 7% lower than R17,955/4Eoz (US$1,224/4Eoz) for Q3 2019 despite significantly lower production. This partly reflects the ongoing realisation of cost synergies from the integration of the Marikana operation into the SA PGM operations, as well as one-off benefits from processing of PoC from Rustenburg, Kroondal and Platinum Mile (due to the Anglo Platinum ACP FM) at the Marikana smelting and refining operations.
Revenue from chrome sales amounted to R309 million for Q3 2020, 6% lower than revenue of R330 million for Q3 2019 due to lower volumes produced and lower prices year-on-year. Chrome sales of 429kt for Q3 2020, compared with 591kt for Q3 2019 with the average chrome price for Q3 2020 of US$138/t, 6% lower than the Q3 2019 average price of US$147/tonne.
Mimosa was largely unaffected by COVID-19 and continued to perform steadily. Attributable 4E PGM production of 31,572 4Eoz was 23% higher than for Q3 2019.
SA gold operations
The post lockdown production build up at the SA Gold operations progressed smoothly and ahead of plan. Gold production of 8,987kg (288,938oz) for Q3 2020 was flat year-on-year, with production building up during both Q3 2020 and Q3 2019 following significant operational disruptions in prior periods. During H1 2020 operations were suspended due to COVID-19 and during H1 2019, the production was significantly affected by the five-month AMCU strike. AISC of R715,345/kg (US$1,316/oz) remained elevated due to lower production, above inflation electricity tariff and wage increases.
Gold production (excluding DRDGOLD) of 7,473kg (240,262oz) was similar to the comparable period in 2019, with AISC of R746,127/kg (US$1,372/oz), 9% higher than for Q3 2019.
The average gold price for Q3 2020 of US$1,845/oz was 27% higher than for the comparable period in 2019, which together with the 15% depreciation of the average rand: dollar exchange rate year-on-year boosted the average rand gold price received for Q3 2020 by 47% to a record level of R1,002,945/kg. The inherent leverage of the SA gold operations to the rand gold price was clearly evident with the adjusted EBITDA margin for the SA Gold operations expanding to 37% compared with 14% for Q3 2019 and adjusted EBITDA increasing 282% to R3,218 million (US$190 million) for Q3 2020.
Underground production from the Driefontein operation of 2,424kg (77,933oz) increased by 17% due to a 14% increase in the average yield to 6.26g/t compared with 5.51g/t for the comparable period in 2019. The higher average yield during the period was a planned consequence of the phased recall of employees since May 2020, with returning crews initially directed to high grade areas, in order to build production and revenue as fast as possible. Underground yields have naturally normalised as the employee complement has increased. AISC declined by 5% to R741,525/kg (US$1,364/oz).
Underground production from the Kloof operation increased by 11% to 2,881kg (92,626oz) compared to Q3 2019, due to a 14% increase in the underground yield for the same reason outlined above. The Kloof surface operation was less impacted by COVID-19 constraints and spare capacity at the underground plants was utilised to accelerate surface throughput in order to offset lower throughput from underground. Surface production for Q3 2020 increased by 23% compared with Q3 2019, to 457kg (14,693oz). Considering the additional cost associated with COVID-19, costs were well controlled, with AISC for Q3 2020 of R718,630/kg (US$1,322/oz) being similar to Q3 2019. As mentioned above total AISC for Kloof is14% higher than the total AISC for the comparative period as a result of higher sales in the current quarter compared to the same period in 2019 (higher GIP and gold on hand in Q3 2019 compared to Q3 2020).
In contrast to the Driefontein and Kloof operations, underground gold production from the Beatrix operation of 1,319kg (42,407oz) declined by 36% compared with Q3 2019. Beatrix employs a higher proportion of foreign nationals than Kloof and Driefontein, with lower crew availability delaying the production build up. Gold production from surface sources increased by 56% to 64kg (2,058oz) due to utilisation of spare plant capacity. AISC for Q3 2020 of R847,561/kg (US$1,559/oz) was 53% higher than for the comparable period in 2019 due to the high fixed cost nature of the operations offset by the lower wage costs of employees not recalled, with lower production in the period.
OUTLOOK
Mined 2E PGM production from the US PGM operations for 2020 is forecast at between 620,000 2Eoz and 650,000 2Eoz, although due to ongoing COVID-19 constraints, is likely to be at the lower end of guidance. AISC is forecast to be between US$830/2Eoz and US$860/2Eoz, after accounting for the price driven royalties and taxes detailed previously. Capital expenditure is forecast to be between US$250 million to US$270 million, with the majority of this spend project in nature.
4E PGM production for 2020 from the SA PGM operations is forecast at between 1.35 million 4Eoz and 1.45 million 4Eoz with AISC between R19,700/4Eoz and R21,000/4Eoz (US$1,159/4Eoz and US$1,235/4Eoz). Given the smooth recovery in production, the upper end of production guidance and lower end of AISC guidance are very achievable. Capital expenditure is forecast at approximately R2,000 million (US$117 million).
Gold production from the managed SA gold operations (excluding DRDGOLD) for 2020 is forecast to be at the upper end of the production guidance of between 23,500kg and 24,500kg (756,000oz and 812,000oz) and as a result AISC is anticipated to be at the lower end of the cost guidance of between R805,000/kg and R840,000/kg (US$1,473/oz and US$1491/oz). Capital expenditure is expected to be marginally lower than the guidance of R2,850 million (US$168 million).
The 2020 dollar guidance is based on an average exchange rate of R17.00/US$.
Neal Froneman
Chief Executive Officer
FORWARD-LOOKING STATEMENT
The information in this document may contain forward-looking statements within the meaning of the “safe harbour” provisions of the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements, including, among others, those relating to Sibanye Stillwater Limited’s (“Sibanye-Stillwater” or the “Group”) financial positions, business strategies, plans and objectives of management for future operations, are necessarily estimates reflecting the best judgment of the senior management and directors of Sibanye-Stillwater and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. As a consequence, these forward-looking statements should be considered in light of various important factors, including those set forth in this document.
All statements other than statements of historical facts included in this document may be forward-looking statements. Forward-looking statements also often use words such as “will”, “forecast”, “potential”, “estimate”, “expect”, “plan”, “anticipate” and words of similar meaning. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances and should be considered in light of various important factors, including those set forth in this disclaimer. Readers are cautioned not to place undue reliance on such statements.
The important factors that could cause Sibanye-Stillwater’s actual results, performance or achievements to differ materially from estimates or projections contained in the forward-looking statements include, without limitation, Sibanye-Stillwater’s future financial position, plans, strategies, objectives, capital expenditures, projected costs and anticipated cost savings, financing plans, debt position and ability to reduce debt leverage; economic, business, political and social conditions in South Africa, Zimbabwe, the United States and elsewhere; plans and objectives of management for future operations; Sibanye-Stillwater’s ability to obtain the benefits of any streaming arrangements or pipeline financing; the ability of Sibanye-Stillwater to comply with loan and other covenants and restrictions and difficulties in obtaining additional financing or refinancing; Sibanye-Stillwater’s ability to service its bond instruments; changes in assumptions underlying Sibanye-Stillwater’s estimation of its current mineral reserves; any failure of a tailings storage facility; the ability to achieve anticipated efficiencies and other cost savings in connection with, and the ability to successfully integrate, past, ongoing and future acquisitions, as well as at existing operations; the ability of Sibanye-Stillwater to complete any ongoing or future acquisitions; the success of Sibanye-Stillwater’s business strategy and exploration and development activities; the ability of Sibanye-Stillwater to comply with requirements that it operate in ways that provide progressive benefits to affected communities; changes in the market price of gold and PGMs; the occurrence of hazards associated with underground and surface mining; any further downgrade of South Africa’s credit rating; a challenge regarding the title to any of Sibanye-Stillwater’s properties by claimants to land under restitution and other legislation; Sibanye-Stillwater’s ability to implement its strategy and any changes thereto; the occurrence of labour disruptions and industrial actions; the availability, terms and deployment of capital or credit; changes in the imposition of regulatory costs and relevant government regulations, particularly environmental, tax, health and safety regulations and new legislation affecting water, mining, mineral rights and business ownership, including any interpretation thereof which may be subject to dispute; the outcome and consequence of any potential or pending litigation or regulatory proceedings or environmental, health or safety issues; the concentration of all final refining activity and a large portion of Sibanye-Stillwater’s PGM sales from mine production in the United States with one entity; the identification of a material weakness in disclosure and internal controls over financial reporting; the effect of US tax reform legislation on Sibanye-Stillwater and its subsidiaries; the effect of South African Exchange Control Regulations on Sibanye-Stillwater’s financial flexibility; operating in new geographies and regulatory environments where Sibanye-Stillwater has no previous experience; power disruptions, constraints and cost increases; supply chain shortages and increases in the price of production inputs; the regional concentration of Sibanye-Stillwater’s operations; fluctuations in exchange rates, currency devaluations, inflation and other macro-economic monetary policies; the occurrence of temporary stoppages of mines for safety incidents and unplanned maintenance; Sibanye-Stillwater’s ability to hire and retain senior management or sufficient technically skilled employees, as well as its ability to achieve sufficient representation of historically disadvantaged South Africans (HDSAs) in its management positions; failure of Sibanye-Stillwater’s information technology and communications systems; the adequacy of Sibanye-Stillwater’s insurance coverage; social unrest, sickness or natural or man-made disaster at informal settlements in the vicinity of some of Sibanye-Stillwater’s South African-based operations; and the impact of HIV, tuberculosis and the spread of other contagious diseases, such as the coronavirus disease (COVID-19). Further details of potential risks and uncertainties affecting Sibanye-Stillwater are described in Sibanye-Stillwater’s filings with the Johannesburg Stock Exchange and the United States Securities and Exchange Commission, including the Integrated Annual Report 2019 and the Annual Report on Form 20-F for the fiscal year ended 31 December 2019.
These forward-looking statements speak only as of the date of the content. Sibanye-Stillwater expressly disclaims any obligation or undertaking to update or revise any forward-looking statement (except to the extent legally required). These forward-looking statements have not been reviewed or reported on by the Company’s external auditors.
- Record quarterly adjusted EBITDA3 of R15,592 million (US$922 million)
- Production build-up at SA operations post lockdown restrictions delivered ahead of schedule
- Leverage 40% lower compared to H1 2020 with net debt: adjusted EBITDA reducing to 0.33x at end Q3 2020
- Net debt reduced by further R11,164 million (US$666 million) following conversion of convertible bond during October 2020
- Another solid performance from the SA PGM Operations
The operational recovery from the severe lockdown in SA in response to the COVID-19 pandemic has progressed well. The proactive and decisive response by the Group to address the COVID-19 challenges, while ensuring the integrity of the operating environment and the safety of all our employees has been pleasing. Comprehensive health and safety protocols, which were developed and implemented early on, have proven to be effective. In the interests of employee safety and operational continuity a more measured and phased production build up was deemed appropriate, particularly as employees from neighbouring countries and other provinces in South Africa were recalled.
The build-up to normalised production levels at the SA operations has progressed better than planned and the manner in which employees have been reintegrated into the operations without a notable increase in infection rates or operational disruptions, validates the more gradual recall and production build-up strategy.
By the end of Q3 2020, the SA gold operations had recalled approximately 92% of the workforce and achieved a production run rate of approximately 99% of planned levels, with the SA PGM operation having recalled approximately 88% of the workforce with a production run rate of 93% of planned levels achieved. By mid-October 2020, both the SA gold and PGM operations were operating at close to planned production rates with the employee complement close to pre-COVID-19 levels.
While the US PGM operations have continued to operate throughout the year, COVID-19 protocols, particularly compliance with social distancing requirements, has had an ongoing negative impact on productivity. The social distancing impact is most prevalent on transport to and from work, with employees living throughout the state of Montana and travelling longer distances to work than in SA. Restricted access to the operations has also affected shift arrangements and blasting schedules, resulting in a negative 8% impact on productivity.
COVID-19 infection rates at the SA operations, have declined significantly after peaking in July 2020 and while there has been a slight increase in infections in recent weeks, we do not anticipate a significant rise in cases or significant risk of the operations being closed. There has been a sharp spike in infections in the US and the state of Montana, and there has been a corresponding increase in positive cases at the US PGM operations. Again, we believe that our protocols are effective to manage the situation and ensure the safety of employees as well as the integrity of the operations insofar as practicable.
Elevated precious metal prices for Q3 2020, together with the 15% depreciation of the rand against the dollar during 2020 year-to-date, has ensured record prices for the basket of metals produced in SA and close to record levels in the US. Despite still being impacted by COVID-19 constraints during Q3 2020, the consistent operational performance coupled with high commodity prices, underpinned an exceptional financial result for the Group for Q3 2020.
Group adjusted EBITDA for Q3 2020 increased by 182% (or R10,056 million/US$545 million) to R15,592 million (US$922 million), compared with the same period in 2019. This represents another record quarterly financial result, surpassing the full-year Group adjusted EBITDA of R14,956 million (US$1,034 million) for 2019. This outstanding result reflects the significant value accretive PGM acquisition strategy embarked on from 2016.
Strong cash flow generation drove a further reduction in net debt during the period, despite the payment of the R1.4 billion H1 2020 dividend. Net debt: adjusted EBITDA (ND: adjusted EBITDA) at the end of Q3 2020, decreased by 40% to 0.33x from 0.55x at the end of June 2020. Subsequent to quarter end, the soft call option on the Convertible Bond (CB) was exercised and the CB was fully redeemed by 19 October 2020. On a proforma basis there is thus a further reduction in net debt of R11,164 million (US$666 million), resulting in ND: adjusted EBITDA declining on a proforma basis to 0.05x* at 30 September 2020.
Available funding increased by 19% from R23,799 million (US$1,372 million) at 30 June 2020 to R28,202 million (US$1,683 million) at 30 September 2020, comprising cash on hand of R15,151 million (US$904 million) (30 June 2020: R12,041 million (US$694 million)), committed undrawn facilities of R11,869 million (US$708 million) (30 June 2020: R9,000 million (US$519 million)), and available uncommitted overnight facilities of R1,182 million (US$71 million) (30 June 2020: R2,758 million (US$159 million)).
The strategic deleveraging which has been a primary focus since 2017 is now complete. At current commodity prices and the prevailing exchange rate, and with the SA operations having attained normalised production run rates, the Group is likely to continue generating significant cash flow. Following the resumption of the dividend in August 2020, the Group is well positioned to deliver superior total returns to shareholders. We will continue to maintain a disciplined approach to capital allocation, with the primary focus on securing the future of the company and delivering on our vision of superior value creation for all our stakeholders by prioritising dividends, share buy backs when appropriate, and smart, value accretive growth.
* Certain information presented in this quarterly update constitutes pro forma financial information. The responsibility for preparing and presenting the pro forma financial information, its completeness and accuracy is that of the directors of Sibanye Stillwater. The information is presented for illustrative purposes only. Because of its nature, the pro forma financial information may not fairly present the Company’s financial position, changes in equity, and results of operations or cash flows. The information has not been audited or reviewed or reported on by external auditors of the Company
SAFE PRODUCTION
The safe production performance for Q3 2020 was mixed, with another good quarterly safety performance from the SA PGM operations, offset by a decline in the safety performance of the SA gold operations.
The SA PGM operations delivered another fatality free quarter (mirroring the zero fatalities for Q2 2020), relative to two fatalities experienced in Q3 2019. On 13 October 2020, the SA PGM operations achieved a milestone of four million fatality free shifts with the last fatality recorded at Siphumelele shaft in March 2020.
Regrettably, after over 13 million shifts and almost two years without any fatal incidents, the SA gold operations suffered two fatalities during Q3 2020. On 8 August 2020, Mr Mfuneka Manikela, a contractor employee at Kloof Thuthukani shaft, was struck by ore flowing down the raise towards the tip while he was travelling in a centre gully to collect equipment. Mr Manikela was 36 years old and is survived by his wife. On 13 August 2020 Mr Bonginkosi Hlophe, a learner miner at Driefontein Hlanganani shaft, was struck by a gravity fall of ground while travelling above the strike gully. Mr Hlope was 38 years old and is survived by his fiancée and three dependents. Our heartfelt condolences go out to the family, friends and colleagues of Mr Manikela and Mr Hlophe. Both incidents are being investigated together with the relevant stakeholders and appropriate support has been provided to both families.
Despite these fatalities we believe that our safety strategy remains appropriate and we will continue to work towards our goal of zero harm. An improvement in serious injury frequency rate (SIFR), lost day injury frequency rate (LDIFR) and the total injury frequency rates of 12%, 20% and 23% respectively was achieved for the quarter, compared to the same period in 2019 for the SA gold operations. The focus on proactively managing leading indicators, in line with our Safe Production Strategy, will remain key in achieving ongoing continual improvement.
The US PGM reported a total reportable injury frequency rate (TRIFR) of 13 per million hours for Q3 2020, compared to 8.5 per million hours for Q3 2019. The majority of incidents were due to slips, trips and falls, which primarily resulted in minor lacerations.
OPERATING REVIEW
US PGM operations
Compliance with COVID-19 protocols continued to affect productivity at the US PGM operations. Logistical constraints (transport of employees) and the need to stagger shift arrangements and blast cycles to accommodate social distancing has resulted in productivity declines of approximately 8% versus pre-COVID-19 levels. For 2020 this is equivalent to a loss of approximately 20,000 2Eoz of mined production. Mined 2E PGM production for Q3 2020 of 147,835 2Eoz was in line with the comparable period in 2019. Production from the Stillwater mine (including Stillwater West and Stillwater East) of 91,940 2Eoz for Q3 2020, was 1% lower than for the comparable period in 2019. The East Boulder mine (EB) produced 55,895 2Eoz, 3% higher than for Q3 2019. Mined tonnes milled for Q3 2020 increased to 370,201 tonnes, 7% higher than for Q3 2019. Plant head grade was 13.6 g/t in Q3 2020, 6% lower than for Q3 2019. Head-grade challenges were largely attributed to lower than expected availability of higher grade stopes. Remedial action has been taken, and a recovery in grade is anticipated for Q4 2020. PGM sales for Q3 2020 of 143,716 2Eoz were 3% higher than for Q3 2019, largely due to the timing of production deliveries in Q3 2020.
All-in sustaining cost (AISC) of US$875/2Eoz for Q3 2020 was 11% higher than for Q3 2019, due to lower than planned 2E PGM production from the Stillwater mine complex and higher royalties and insurance. The average 2E PGM basket price for Q3 2020, was approximately 96% higher than the average basket price used for planning, with a consequential increase in royalties and insurance accounting for approximately US$51/2Eoz (6%) of the increase in AISC year-on-year.
The recycling operation fed an average of 25tpd of spent catalyst for Q3 2020. Recycling inventory normalised at approximately 200 tonnes following the accelerated processing of inventory in Q2 2020, although has increased subsequent to quarter end due to planned maintenance at the smelter early in Q4 2020. Ongoing COVID-19 related logistical and liquidity constraints constraining the global recycling industry, continued to affect recycle receipts during Q3 2020 although recycle receipts have begun normalising and are trending back to pre-COVID-19 levels. It should be noted that recycle receipts are region specific, with COVID-19 continuing to constrain global supply from some regions.
The 2E PGM basket price for Q3 2020 averaged US$1,898/2Eoz, 37% higher than for Q3 2019, driving the mined adjusted EBITDA margin to 62% from 57% in Q3 2019. Adjusted EBITDA for the US PGM operations increased by 55% year-on-year to US$191 million (R3,227 million), with the recycling operation contributing US$10 million (R170 million). After accounting for recycling, the blended adjusted EBITDA margin for the US PGM operations increased from 27% in Q3 2019 to 34% in Q3 2020.
Total capital expenditure for Q3 2020 amounted to US$69 million and was mainly spent on the Blitz and Fill the mill (FTM) growth projects (54% or US$37 million).
The Blitz project has been reviewed following the suspension of growth capital activities due to COVID-19 during Q1 and Q2 2020, which, as signalled in our H1 2020 results, further delayed the project schedule. The project review has indicated a delay of up to two years, with production from Blitz now expected to reach a steady state run rate of approximately 300,000 2Eoz per annum by 2024. Further detail on the project will be provided in Q1 2021, following the completion of the annual production planning cycle.The FTM project is on schedule and on budget, building up to an annualised production run rate of approximately 40,000 2Eoz per annum from December 2020. This project yields an estimated net present value of over US$460m at spot 2E PGM prices.
SA PGM operations
Despite ongoing COVID-19 related constraints at the SA PGM operations during Q3 2020, the ongoing production build-up was well managed, with costs kept under control. Primarily due to the progressive production build up during the quarter, 4E PGM production of 427,715 4Eoz for Q3 2020 was 18% lower than for the comparable period in 2019.
Costs were well managed with AISC increasing by only 5% year-on-year to R16,985/4Eoz (US$1,004/4Eoz), despite lower production and above inflation electricity tariffs and wage adjustments. Higher state royalty tax arising from the increase in revenue and profitability were partly offset by financial benefits accruing to the Marikana smelting and refining operations from the processing of Purchase of Concentrate (PoC) from Rustenburg, Kroondal and Platinum Mile following the declaration of Force Majeure (FM) by Anglo American Platinum (Anglo Platinum) during March 2020 after breakdowns at its converter plants (ACP).
The average 4E PGM basket price of R36,840/4Eoz (US$2,179/4Eoz) for Q3 2020 was 81% higher than for Q3 2019. This was primarily driven by significant price gains in rhodium (166%) and palladium (41%) period-on-period and a 15% weaker rand exchange rate. Rhodium and palladium respectively contributed approximately 42% and 30% of the spot 4E PGM basket revenue for Q3 2020, despite comprising just 8% and 30% of the 4E prill split. The record average 4E basket price combined with the steady increase in production post the COVID-19 lockdown, enabled a 217% increase in adjusted EBITDA for the SA PGM operations to R9,287 million (US$549 million) for Q3 2020, with the adjusted EBITDA margin more than doubling from 25% for Q3 2019 to 58% for Q3 2020.
Notably, the R9,287 million adjusted EBITDA generated during this quarter accounts for 72% of the R12.8 billion aggregated initial acquisition cost of Kroondal, Rustenburg and Marikana. Considering the higher prevailing average PGM basket price in Q4 2020 to date, combined with the return to normalised production rates during October, the outlook for Q4 2020 is extremely positive.
PGM production of 154,904 4Eoz from the Rustenburg operation was 14% lower than for Q3 2019. Underground production was 17% lower due to the ongoing build-up of production post the COVID-19 lockdown. This was partly offset by an 18% increase in production from the surface operations, which were less affected by COVID-19 related restrictions. AISC for the Rustenburg operation increased by 19% year-on-year to R18,864/4Eoz (US$1,116/4Eoz), primarily due to lower production, compounded by above inflation increases in wages and electricity tariffs, with higher royalty tax adding approximately R1,624/4Eoz (US$96/4Eoz). At normalised production levels and adjusting for the higher royalty tax, AISC would have been R14,813/4Eoz (US$876/4Eoz), well within SA inflation. The combined AISC margin for the Rustenburg operation increased from 31% for Q3 2019 to 59% for Q3 2020.
The Kroondal operation delivered another solid operational performance despite COVID-19 constraints. Despite being a primarily mechanised operation, a relatively higher proportion of Kroondal’s labour complement comes from neighbouring countries and other SA provinces which, due to COVID-19 travel restrictions on travel, resulted in a more delayed recall of employees, compounded by the need to quarantine or isolate returning employees. As a result, 4E PGM production of 53,299oz was 21% lower for Q3 2020 than for Q3 2019. Absolute costs were well managed, with above inflationary electricity tariff and wage increases being absorbed, but due to the lower production volumes, AISC increased by 18% to R12,805/4Eoz (US$757/4Eoz) year-on-year, considerably less than the 93% year-on-year increase in the average PGM basket price.
PGM production from the Marikana operation for Q3 2020 of 177,717 4Eoz was 26% lower than for Q3 2019. The production decline was again primarily due to the gradual production build, with the buildup at the conventional Marikana shafts slower than at the more mechanised Rustenburg operation. The Marikana operation also employs a higher proportion of foreign nationals and employees from other provinces than the Rustenburg operations, which further delayed the production build up. Restructuring of the Marikana operations and closure of three Generation 1 shafts, which produced 10,537 4Eoz for Q3 2019, also contributed to the decline in production year-on-year. AISC of R16,779/4Eoz (US$992/4Eoz) was 7% lower than R17,955/4Eoz (US$1,224/4Eoz) for Q3 2019 despite significantly lower production. This partly reflects the ongoing realisation of cost synergies from the integration of the Marikana operation into the SA PGM operations, as well as one-off benefits from processing of PoC from Rustenburg, Kroondal and Platinum Mile (due to the Anglo Platinum ACP FM) at the Marikana smelting and refining operations.
Revenue from chrome sales amounted to R309 million for Q3 2020, 6% lower than revenue of R330 million for Q3 2019 due to lower volumes produced and lower prices year-on-year. Chrome sales of 429kt for Q3 2020, compared with 591kt for Q3 2019 with the average chrome price for Q3 2020 of US$138/t, 6% lower than the Q3 2019 average price of US$147/tonne.
Mimosa was largely unaffected by COVID-19 and continued to perform steadily. Attributable 4E PGM production of 31,572 4Eoz was 23% higher than for Q3 2019.
SA gold operations
The post lockdown production build up at the SA Gold operations progressed smoothly and ahead of plan. Gold production of 8,987kg (288,938oz) for Q3 2020 was flat year-on-year, with production building up during both Q3 2020 and Q3 2019 following significant operational disruptions in prior periods. During H1 2020 operations were suspended due to COVID-19 and during H1 2019, the production was significantly affected by the five-month AMCU strike. AISC of R715,345/kg (US$1,316/oz) remained elevated due to lower production, above inflation electricity tariff and wage increases.
Gold production (excluding DRDGOLD) of 7,473kg (240,262oz) was similar to the comparable period in 2019, with AISC of R746,127/kg (US$1,372/oz), 9% higher than for Q3 2019.
The average gold price for Q3 2020 of US$1,845/oz was 27% higher than for the comparable period in 2019, which together with the 15% depreciation of the average rand: dollar exchange rate year-on-year boosted the average rand gold price received for Q3 2020 by 47% to a record level of R1,002,945/kg. The inherent leverage of the SA gold operations to the rand gold price was clearly evident with the adjusted EBITDA margin for the SA Gold operations expanding to 37% compared with 14% for Q3 2019 and adjusted EBITDA increasing 282% to R3,218 million (US$190 million) for Q3 2020.
Underground production from the Driefontein operation of 2,424kg (77,933oz) increased by 17% due to a 14% increase in the average yield to 6.26g/t compared with 5.51g/t for the comparable period in 2019. The higher average yield during the period was a planned consequence of the phased recall of employees since May 2020, with returning crews initially directed to high grade areas, in order to build production and revenue as fast as possible. Underground yields have naturally normalised as the employee complement has increased. AISC declined by 5% to R741,525/kg (US$1,364/oz).
Underground production from the Kloof operation increased by 11% to 2,881kg (92,626oz) compared to Q3 2019, due to a 14% increase in the underground yield for the same reason outlined above. The Kloof surface operation was less impacted by COVID-19 constraints and spare capacity at the underground plants was utilised to accelerate surface throughput in order to offset lower throughput from underground. Surface production for Q3 2020 increased by 23% compared with Q3 2019, to 457kg (14,693oz). Considering the additional cost associated with COVID-19, costs were well controlled, with AISC for Q3 2020 of R718,630/kg (US$1,322/oz) being similar to Q3 2019. As mentioned above total AISC for Kloof is14% higher than the total AISC for the comparative period as a result of higher sales in the current quarter compared to the same period in 2019 (higher GIP and gold on hand in Q3 2019 compared to Q3 2020).
In contrast to the Driefontein and Kloof operations, underground gold production from the Beatrix operation of 1,319kg (42,407oz) declined by 36% compared with Q3 2019. Beatrix employs a higher proportion of foreign nationals than Kloof and Driefontein, with lower crew availability delaying the production build up. Gold production from surface sources increased by 56% to 64kg (2,058oz) due to utilisation of spare plant capacity. AISC for Q3 2020 of R847,561/kg (US$1,559/oz) was 53% higher than for the comparable period in 2019 due to the high fixed cost nature of the operations offset by the lower wage costs of employees not recalled, with lower production in the period.
OUTLOOK
Mined 2E PGM production from the US PGM operations for 2020 is forecast at between 620,000 2Eoz and 650,000 2Eoz, although due to ongoing COVID-19 constraints, is likely to be at the lower end of guidance. AISC is forecast to be between US$830/2Eoz and US$860/2Eoz, after accounting for the price driven royalties and taxes detailed previously. Capital expenditure is forecast to be between US$250 million to US$270 million, with the majority of this spend project in nature.
4E PGM production for 2020 from the SA PGM operations is forecast at between 1.35 million 4Eoz and 1.45 million 4Eoz with AISC between R19,700/4Eoz and R21,000/4Eoz (US$1,159/4Eoz and US$1,235/4Eoz). Given the smooth recovery in production, the upper end of production guidance and lower end of AISC guidance are very achievable. Capital expenditure is forecast at approximately R2,000 million (US$117 million).
Gold production from the managed SA gold operations (excluding DRDGOLD) for 2020 is forecast to be at the upper end of the production guidance of between 23,500kg and 24,500kg (756,000oz and 812,000oz) and as a result AISC is anticipated to be at the lower end of the cost guidance of between R805,000/kg and R840,000/kg (US$1,473/oz and US$1491/oz). Capital expenditure is expected to be marginally lower than the guidance of R2,850 million (US$168 million).
The 2020 dollar guidance is based on an average exchange rate of R17.00/US$.
Neal Froneman
Chief Executive Officer
FORWARD-LOOKING STATEMENT
The information in this document may contain forward-looking statements within the meaning of the “safe harbour” provisions of the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements, including, among others, those relating to Sibanye Stillwater Limited’s (“Sibanye-Stillwater” or the “Group”) financial positions, business strategies, plans and objectives of management for future operations, are necessarily estimates reflecting the best judgment of the senior management and directors of Sibanye-Stillwater and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. As a consequence, these forward-looking statements should be considered in light of various important factors, including those set forth in this document.
All statements other than statements of historical facts included in this document may be forward-looking statements. Forward-looking statements also often use words such as “will”, “forecast”, “potential”, “estimate”, “expect”, “plan”, “anticipate” and words of similar meaning. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances and should be considered in light of various important factors, including those set forth in this disclaimer. Readers are cautioned not to place undue reliance on such statements.
The important factors that could cause Sibanye-Stillwater’s actual results, performance or achievements to differ materially from estimates or projections contained in the forward-looking statements include, without limitation, Sibanye-Stillwater’s future financial position, plans, strategies, objectives, capital expenditures, projected costs and anticipated cost savings, financing plans, debt position and ability to reduce debt leverage; economic, business, political and social conditions in South Africa, Zimbabwe, the United States and elsewhere; plans and objectives of management for future operations; Sibanye-Stillwater’s ability to obtain the benefits of any streaming arrangements or pipeline financing; the ability of Sibanye-Stillwater to comply with loan and other covenants and restrictions and difficulties in obtaining additional financing or refinancing; Sibanye-Stillwater’s ability to service its bond instruments; changes in assumptions underlying Sibanye-Stillwater’s estimation of its current mineral reserves; any failure of a tailings storage facility; the ability to achieve anticipated efficiencies and other cost savings in connection with, and the ability to successfully integrate, past, ongoing and future acquisitions, as well as at existing operations; the ability of Sibanye-Stillwater to complete any ongoing or future acquisitions; the success of Sibanye-Stillwater’s business strategy and exploration and development activities; the ability of Sibanye-Stillwater to comply with requirements that it operate in ways that provide progressive benefits to affected communities; changes in the market price of gold and PGMs; the occurrence of hazards associated with underground and surface mining; any further downgrade of South Africa’s credit rating; a challenge regarding the title to any of Sibanye-Stillwater’s properties by claimants to land under restitution and other legislation; Sibanye-Stillwater’s ability to implement its strategy and any changes thereto; the occurrence of labour disruptions and industrial actions; the availability, terms and deployment of capital or credit; changes in the imposition of regulatory costs and relevant government regulations, particularly environmental, tax, health and safety regulations and new legislation affecting water, mining, mineral rights and business ownership, including any interpretation thereof which may be subject to dispute; the outcome and consequence of any potential or pending litigation or regulatory proceedings or environmental, health or safety issues; the concentration of all final refining activity and a large portion of Sibanye-Stillwater’s PGM sales from mine production in the United States with one entity; the identification of a material weakness in disclosure and internal controls over financial reporting; the effect of US tax reform legislation on Sibanye-Stillwater and its subsidiaries; the effect of South African Exchange Control Regulations on Sibanye-Stillwater’s financial flexibility; operating in new geographies and regulatory environments where Sibanye-Stillwater has no previous experience; power disruptions, constraints and cost increases; supply chain shortages and increases in the price of production inputs; the regional concentration of Sibanye-Stillwater’s operations; fluctuations in exchange rates, currency devaluations, inflation and other macro-economic monetary policies; the occurrence of temporary stoppages of mines for safety incidents and unplanned maintenance; Sibanye-Stillwater’s ability to hire and retain senior management or sufficient technically skilled employees, as well as its ability to achieve sufficient representation of historically disadvantaged South Africans (HDSAs) in its management positions; failure of Sibanye-Stillwater’s information technology and communications systems; the adequacy of Sibanye-Stillwater’s insurance coverage; social unrest, sickness or natural or man-made disaster at informal settlements in the vicinity of some of Sibanye-Stillwater’s South African-based operations; and the impact of HIV, tuberculosis and the spread of other contagious diseases, such as the coronavirus disease (COVID-19). Further details of potential risks and uncertainties affecting Sibanye-Stillwater are described in Sibanye-Stillwater’s filings with the Johannesburg Stock Exchange and the United States Securities and Exchange Commission, including the Integrated Annual Report 2019 and the Annual Report on Form 20-F for the fiscal year ended 31 December 2019.
These forward-looking statements speak only as of the date of the content. Sibanye-Stillwater expressly disclaims any obligation or undertaking to update or revise any forward-looking statement (except to the extent legally required). These forward-looking statements have not been reviewed or reported on by the Company’s external auditors.
