Sibanye Gold Limited trading as Sibanye-Stillwater (Sibanye-Stillwater or the Group) (JSE: SGL and NYSE: SBGL) is pleased to report operating results and reviewed condensed consolidated interim financial statements for the six months ended 30 June 2018.
SALIENT FEATURES FOR THE SIX MONTHS ENDED 30 JUNE 2018 COMPARED TO SIX MONTHS ENDED 30 JUNE 2017
• Group adjusted EBITDA2 increased by 26% to R3.9 billion (US$316 million)
• Further operational improvement from the SA PGM operations with 2% lower AISC of R10,106/4Eoz (US$821/4Eoz) and adjusted EBITDA increasing by 115% to R1,001 million
• Another solid performance from the US PGM operations with 2E PGM production of 293,959oz and AISC of US$653/2Eoz and the Blitz project remains ahead of schedule
• On a like-for-like basis (excluding the Cooke operations) production from the SA gold operations declined by 7% to 18,616kg (598,500oz) with AISC 7% higher to R520,488/kg (US$1,315/oz), mainly as a result of lower volumes
• Good operational recovery by Beatrix and Kloof from safety related disruptions, with only Driefontein not fully recovering
• Deleveraging accelerated through US$500 million stream financing in July 2018, resulting in pro forma ND:adjusted EBITDA reducing to approximately 1.85x
• Lonmin acquisition remains on track with approval received from SARB and the competition authority in the UK
STATEMENT BY NEAL FRONEMAN, CHIEF EXECUTIVE OFFICER OF SIBANYE-STILLWATER
The six month period ended 30 June 2018 (H1 2018), was extremely challenging for all Sibanye-Stillwater stakeholders. The spate of fatalities at our SA operations was traumatic and emotionally testing for everyone at Sibanye-Stillwater. Safety is a core component of our CARES (Commitment, Accountability, Respect, Enabling Environment, Safe Production) values and our values guide every decision made, every day. We employ over 66,000 people globally and our success is enabled and driven by our people. Nothing is more important to all of us at Sibanye-Stillwater than safe production. As such, the recent events have caused much concern and we are implementing a comprehensive safety remediation plan in order to re-instil core, safe working practices at our operations.
The significant operational disruptions associated with these tragic events were compounded by the challenging operating environment prevailing during the period. The acute appreciation of the rand in the early part of the year, combined with volatile dollar prices of precious metals which came under pressure later in the period due to global developments, severely squeezed SA margins.
Considering the challenging economic backdrop in H1 2018 and the significant operational disruptions faced at our SA gold operations, the generally solid, overall operating and financial results delivered by the Group are pleasing, confirming the rationale for geographical and commodity diversification, as well the Sibanye-Stillwater’s inherent capacity to successfully accommodate and integrate acquisitions in different geographies and sectors.
Despite the significant disruptions across the SA gold operations, Beatrix and Kloof delivered solid results. Production from both operations was marginally lower than for the comparable period in 2017 and All-in Sustaining Cost (AISC) increases were below inflation (South African CPI). Only the Driefontein operations were unable to recover due to seismic damage to the footwall infrastructure that provides access to the western side of the Masakhane mine. Rehabilitation efforts are underway but access to the area will be restricted until Q1 2019, following which normal levels of production from Driefontein are expected to resume. The SA and US PGM operations continued to perform well in H1 2018, delivering on their production targets and generating solid financial outcomes in an improved rand basket price environment during the period. The PGM operations in both regions delivered positive cash flow for the period, largely offsetting the decline from the SA gold operations and validating the commodity and geographic diversification undertaken by the Group since 2015.
The graphs below reflect the diversification benefits, with quarterly Group adjusted EBITDA in 2018 higher than for the comparable periods in 2017 and with adjusted EBITDA from the US and SA PGM operations consistently increasing. This offset the decline in adjusted EBITDA from the SA gold operations.
On the back of a steady production outlook and continued appreciation of the rand PGM basket price during the year, the SA PGM operations’ contribution to Group adjusted EBITDA is likely to increase further in H2 2018. At the US PGM operations, the ongoing ramp up to full production at Blitz likely to continue to drive higher revenue and lower unit costs.
Our confidence in the positive fundamental outlook for both palladium and platinum remains intact, despite the recent abrupt decline in spot prices. The decline appears to be driven by short term speculative trading and fueled by the uncertain economic impact of recent global trade hostilities. Further restructuring, which was recently announced by our SA PGM industry peers, is consistent with, and supports our fundamental view of impending deficits.
The outlook for the SA gold operations remains similarly positive, despite production from the western side of Driefontein’s Masakhane shaft being constrained while the rehabilitation project continues. Unit costs during this period will also be temporarily elevated. From Q1 2019 production levels should revert to normal with an expected commensurate decline in unit costs. Despite the imperative of addressing safety and other operational issues experienced during H1 2018, we have maintained focus on the execution of our strategy. As a critical element in our accelerated deleveraging, US$500 million was raised, post interim end, through a well-structured and competitively priced streaming transaction. At the end of H1 2018, our ND:adjusted EBITDA ratio was 2.55x, having declined from 2.56x at the end of the 2017 financial year. The US$500 million upfront cash raised through the stream, enables an approximate 0.7x reduction in Group ND:adjusted EBITDA at the end of H1 2018, thereby reducing the Group leverage ratio to approximately 1.85x on a pro forma basis. This is well below the 3.5x existing covenant and future 2.5x covenant ratios. The stream was generally well received by the market and was followed by a sharp decline in open short trading positions. Other measures to further accelerate deleveraging continue to be assessed.
Positive progress was made in bringing the proposed Lonmin transaction to completion, with approvals obtained from both the South African Reserve Bank and the Competition and Markets Authority (CMA) in the UK. The approval process with the South African competition authorities continues. The transaction is subject to the fulfilment of certain other conditions precedent and is expected to complete during the second half of 2018.
Progress was also made on realising value from non-core assets. The DRDGOLD transaction, in terms of which selected gold surface assets and reserves have been sold to DRDGOLD for a 38% equity stake in the company, was concluded in late July 2018. An earnin transaction was entered into with Regulus Resources Inc. regarding the Altar copper-gold project in Argentina, which will see Sibanye-Stillwater benefitting from an upfront cash payment of US$15 million, while still retaining significant exposure to potential upside in the Altar project. More detail on these transactions is provided in the corporate activity section below. We have managed to navigate our way through a very challenging period and I am confident that we have emerged in a stronger position than we were at the beginning. The Group has been refocused and re-energised and I am confident that we are well positioned to deliver significant value to all of our stakeholders in future.
SAFETY
The Group suffered a number of tragic safety incidents during H1 2018. Q2 2018 was dominated by two safety disasters in which 12 of our colleagues passed away in separate incidents at our Driefontein and Kloof mines. A seismic event on 3 May 2018 at Driefontein’s Masakhane shaft resulted in severe damage to the workings with seven of our employees fatally injured and a further six rescued. On 11 June 2018, five employees passed away when a shift boss led employees into a temporary stopped barricaded area. Severe events of this nature, leading to multiple fatalities at the SA Gold operations, are unparalleled in Sibanye-Stillwater’s history and are a significant departure from our safety performance. Investigation of these events by the DMR continues. Sibanye-Stillwater management and Board, express their sincere condolences to the family and colleagues of the employees who perished during the period. In Q1: Solly Ngobeni, Chicco Dube, Matela Mating, Zanempi Mncwazi, Otshepeng Ramosito and Ntokozo Ntame and in Q2: Mlungisi Vukuthi , Luke Bongumusa Mngomezulu, Baptista Paulino Cuambe, X-Mas Madikizela, Mbulelo Albert Sonqowa, Thabo Abram Ntsekhe, Nkosiphendule Dudlela, Luis Ernesto LumbeGazala, Thokozani Tembe, Lingani Innocent Mngadi, Lakhi Msada, Mthokozisi Msutu, Cedrick Nkuna, Kholekile Phelile and Bhekithemba Thembinkosi Ndabeni. On a positive note, it is pleasing to report that Beatrix has now been fatality free for more than 15 months and that there were no fatal incidents at the SA PGM operations in Q2.
We continue to take structured and well-defined steps to restore our SA gold operations back to industry leading safety performance. At our 2017 year end results presentation in February this year, I stated that in order to break through the safety plateau we had reached we would need to do things differently by impacting attitude and safe behaviour, and that a Health and Safety compact between all stakeholders was necessary if we were to achieve ZERO HARM in the workplace. ZERO HARM involves rethinking and recommitting to building bridges of collaboration between every stakeholder in the mining sector. It is our singular focus to improve mine safety and enhance the values-based behaviours that will achieve that success. We convened a multi-stakeholder Safety Summit on 25 May 2018, which was well attended by all the unions and the DMR as well as senior management from Sibanye-Stillwater. All the stakeholders committed to working together to make the workplaces safer, protect jobs and collaborate on all matters pertaining to the health, safety and wellbeing of workers. A safety pledge was jointly developed setting out the scope and spirit in which stakeholders agree to work further towards achieving ZERO HARM underpinning a substantial shared resolve to jointly strive to address the safety challenges. This is a significant achievement and the first time that I am aware that all stakeholders in the industry have committed to a compact of this nature. The Safety Summits are ongoing and joint implementation task teams will monitor and report on progress made in implementing the priority areas that were jointly identified by stakeholders at the summits.
Considering the substantial behavioural component involved in most fatal incidents, organisational culture and leadership are being reviewed to ensure that safety is inculcated as the foremost consideration in decisions at all levels. The need has been identified to re-instil our CARES values as the context within which we take all our decisions as a cornerstone of culture transformation. An intense programme to promote the responsible application of the provisions of Section 23 of the Mine Health and Safety Act, which affords employees the right to withdraw from unsafe conditions, confirms our top level commitment to safe operations.
In the US region, the operations have been fatality free since October 2011. The total injury frequency rate for H1 2018 increased to 18.2 compared to a rate of 12.7 per million hours in 2017, while the serious injury frequency rate also increased to 8.8 from 5.9 per million hours when comparing H1 2018 to 2017. Although no common theme with the increase in the injury rates could be established, US region management continues to address this disappointing increase as a priority.
A recognised expert in mine safety, Dr Kobus de Jager has been appointed as Group Head of Safe operations. Kobus has over 40 years’ experience in mine safety with academic and practical credentials in leadership and behavioural safety. His primary remit will be to fully review the Company’s safety management systems and processes.
FINANCIAL OVERVIEW
Group revenue of R23,910 million (US$1,942 million) for H1 2018 was 24% higher than for the comparable period in 2017. The inclusion of a full six months production from the US PGM operations which were acquired in May 2017, and higher PGM basket prices, offset lower revenue from the SA gold operations, which declined by R1,596 million (US$67 million). Revenue for the SA gold operations was impacted by the 13% decline in gold produced, primarily due to the closure of the Cooke operations in H2 2017 and the impact of operational disruptions at the Driefontein operations, compounded by a 1% decline in the average rand gold price received to R519,994/kg (US$1,314/oz).
Group adjusted EBITDA for the six months ended 30 June 2018 of R3,896 million (US$316million) increased by 26% year-on-year, positively impacting Group leverage measures.
Primarily due to the successful refinancing of the bridge loan, net finance expenses for H1 2018 decreased by R52 million (US$3 million) year-on-year to R1,193 million (US97 million).
A R710 million (US$58 million) gain on financial instruments compared to a R261 million (US$20 million) loss for the previous comparable period, was largely due to the decline in the market value of the US$450 million Convertible Bond during H1 2018. The financial results for H1 2017 were significantly affected by transaction and financing costs associated with the acquisition of Stillwater, and higher restructuring costs and impairments associated with the early, decisive action taken by the Group to address losses at its SA gold operations (resulting in the cessation of mining at the Cooke underground operations and jointly agreed interventions at the Beatrix West mine). These costs were compounded by a R1,077 million (US$82 million) occupational healthcare expense being recognised in anticipation of a possible settlement of class action claims and related costs, resulting in combined non-underlying costs of R4,423 million (US$335 million). Following the resumption of more normal operating activities, the costs (combined) for H1 2018, were R4,066 million (US$330 million) lower at R357 million (US$29 million) than for H1 2017. The Group recorded a net profit of R78 million (US$7 million) for H1 2018 compared with a loss of R4,803 million (US$364 million) for the comparable period in 2017.
The Normalised loss (attributable earnings adjusted for non-cash gains and losses, non-recurring items and share of result of equityaccounted investees) for the six months ended 30 June 2018 of R521 million (US$42 million), was significantly less than the R1,002 million (US$76 million) normalised loss reported for the first half of the previous year.
Please find further information in the attachement.
SALIENT FEATURES FOR THE SIX MONTHS ENDED 30 JUNE 2018 COMPARED TO SIX MONTHS ENDED 30 JUNE 2017
• Group adjusted EBITDA2 increased by 26% to R3.9 billion (US$316 million)
• Further operational improvement from the SA PGM operations with 2% lower AISC of R10,106/4Eoz (US$821/4Eoz) and adjusted EBITDA increasing by 115% to R1,001 million
• Another solid performance from the US PGM operations with 2E PGM production of 293,959oz and AISC of US$653/2Eoz and the Blitz project remains ahead of schedule
• On a like-for-like basis (excluding the Cooke operations) production from the SA gold operations declined by 7% to 18,616kg (598,500oz) with AISC 7% higher to R520,488/kg (US$1,315/oz), mainly as a result of lower volumes
• Good operational recovery by Beatrix and Kloof from safety related disruptions, with only Driefontein not fully recovering
• Deleveraging accelerated through US$500 million stream financing in July 2018, resulting in pro forma ND:adjusted EBITDA reducing to approximately 1.85x
• Lonmin acquisition remains on track with approval received from SARB and the competition authority in the UK
STATEMENT BY NEAL FRONEMAN, CHIEF EXECUTIVE OFFICER OF SIBANYE-STILLWATER
The six month period ended 30 June 2018 (H1 2018), was extremely challenging for all Sibanye-Stillwater stakeholders. The spate of fatalities at our SA operations was traumatic and emotionally testing for everyone at Sibanye-Stillwater. Safety is a core component of our CARES (Commitment, Accountability, Respect, Enabling Environment, Safe Production) values and our values guide every decision made, every day. We employ over 66,000 people globally and our success is enabled and driven by our people. Nothing is more important to all of us at Sibanye-Stillwater than safe production. As such, the recent events have caused much concern and we are implementing a comprehensive safety remediation plan in order to re-instil core, safe working practices at our operations.
The significant operational disruptions associated with these tragic events were compounded by the challenging operating environment prevailing during the period. The acute appreciation of the rand in the early part of the year, combined with volatile dollar prices of precious metals which came under pressure later in the period due to global developments, severely squeezed SA margins.
Considering the challenging economic backdrop in H1 2018 and the significant operational disruptions faced at our SA gold operations, the generally solid, overall operating and financial results delivered by the Group are pleasing, confirming the rationale for geographical and commodity diversification, as well the Sibanye-Stillwater’s inherent capacity to successfully accommodate and integrate acquisitions in different geographies and sectors.
Despite the significant disruptions across the SA gold operations, Beatrix and Kloof delivered solid results. Production from both operations was marginally lower than for the comparable period in 2017 and All-in Sustaining Cost (AISC) increases were below inflation (South African CPI). Only the Driefontein operations were unable to recover due to seismic damage to the footwall infrastructure that provides access to the western side of the Masakhane mine. Rehabilitation efforts are underway but access to the area will be restricted until Q1 2019, following which normal levels of production from Driefontein are expected to resume. The SA and US PGM operations continued to perform well in H1 2018, delivering on their production targets and generating solid financial outcomes in an improved rand basket price environment during the period. The PGM operations in both regions delivered positive cash flow for the period, largely offsetting the decline from the SA gold operations and validating the commodity and geographic diversification undertaken by the Group since 2015.
The graphs below reflect the diversification benefits, with quarterly Group adjusted EBITDA in 2018 higher than for the comparable periods in 2017 and with adjusted EBITDA from the US and SA PGM operations consistently increasing. This offset the decline in adjusted EBITDA from the SA gold operations.
On the back of a steady production outlook and continued appreciation of the rand PGM basket price during the year, the SA PGM operations’ contribution to Group adjusted EBITDA is likely to increase further in H2 2018. At the US PGM operations, the ongoing ramp up to full production at Blitz likely to continue to drive higher revenue and lower unit costs.
Our confidence in the positive fundamental outlook for both palladium and platinum remains intact, despite the recent abrupt decline in spot prices. The decline appears to be driven by short term speculative trading and fueled by the uncertain economic impact of recent global trade hostilities. Further restructuring, which was recently announced by our SA PGM industry peers, is consistent with, and supports our fundamental view of impending deficits.
The outlook for the SA gold operations remains similarly positive, despite production from the western side of Driefontein’s Masakhane shaft being constrained while the rehabilitation project continues. Unit costs during this period will also be temporarily elevated. From Q1 2019 production levels should revert to normal with an expected commensurate decline in unit costs. Despite the imperative of addressing safety and other operational issues experienced during H1 2018, we have maintained focus on the execution of our strategy. As a critical element in our accelerated deleveraging, US$500 million was raised, post interim end, through a well-structured and competitively priced streaming transaction. At the end of H1 2018, our ND:adjusted EBITDA ratio was 2.55x, having declined from 2.56x at the end of the 2017 financial year. The US$500 million upfront cash raised through the stream, enables an approximate 0.7x reduction in Group ND:adjusted EBITDA at the end of H1 2018, thereby reducing the Group leverage ratio to approximately 1.85x on a pro forma basis. This is well below the 3.5x existing covenant and future 2.5x covenant ratios. The stream was generally well received by the market and was followed by a sharp decline in open short trading positions. Other measures to further accelerate deleveraging continue to be assessed.
Positive progress was made in bringing the proposed Lonmin transaction to completion, with approvals obtained from both the South African Reserve Bank and the Competition and Markets Authority (CMA) in the UK. The approval process with the South African competition authorities continues. The transaction is subject to the fulfilment of certain other conditions precedent and is expected to complete during the second half of 2018.
Progress was also made on realising value from non-core assets. The DRDGOLD transaction, in terms of which selected gold surface assets and reserves have been sold to DRDGOLD for a 38% equity stake in the company, was concluded in late July 2018. An earnin transaction was entered into with Regulus Resources Inc. regarding the Altar copper-gold project in Argentina, which will see Sibanye-Stillwater benefitting from an upfront cash payment of US$15 million, while still retaining significant exposure to potential upside in the Altar project. More detail on these transactions is provided in the corporate activity section below. We have managed to navigate our way through a very challenging period and I am confident that we have emerged in a stronger position than we were at the beginning. The Group has been refocused and re-energised and I am confident that we are well positioned to deliver significant value to all of our stakeholders in future.
SAFETY
The Group suffered a number of tragic safety incidents during H1 2018. Q2 2018 was dominated by two safety disasters in which 12 of our colleagues passed away in separate incidents at our Driefontein and Kloof mines. A seismic event on 3 May 2018 at Driefontein’s Masakhane shaft resulted in severe damage to the workings with seven of our employees fatally injured and a further six rescued. On 11 June 2018, five employees passed away when a shift boss led employees into a temporary stopped barricaded area. Severe events of this nature, leading to multiple fatalities at the SA Gold operations, are unparalleled in Sibanye-Stillwater’s history and are a significant departure from our safety performance. Investigation of these events by the DMR continues. Sibanye-Stillwater management and Board, express their sincere condolences to the family and colleagues of the employees who perished during the period. In Q1: Solly Ngobeni, Chicco Dube, Matela Mating, Zanempi Mncwazi, Otshepeng Ramosito and Ntokozo Ntame and in Q2: Mlungisi Vukuthi , Luke Bongumusa Mngomezulu, Baptista Paulino Cuambe, X-Mas Madikizela, Mbulelo Albert Sonqowa, Thabo Abram Ntsekhe, Nkosiphendule Dudlela, Luis Ernesto LumbeGazala, Thokozani Tembe, Lingani Innocent Mngadi, Lakhi Msada, Mthokozisi Msutu, Cedrick Nkuna, Kholekile Phelile and Bhekithemba Thembinkosi Ndabeni. On a positive note, it is pleasing to report that Beatrix has now been fatality free for more than 15 months and that there were no fatal incidents at the SA PGM operations in Q2.
We continue to take structured and well-defined steps to restore our SA gold operations back to industry leading safety performance. At our 2017 year end results presentation in February this year, I stated that in order to break through the safety plateau we had reached we would need to do things differently by impacting attitude and safe behaviour, and that a Health and Safety compact between all stakeholders was necessary if we were to achieve ZERO HARM in the workplace. ZERO HARM involves rethinking and recommitting to building bridges of collaboration between every stakeholder in the mining sector. It is our singular focus to improve mine safety and enhance the values-based behaviours that will achieve that success. We convened a multi-stakeholder Safety Summit on 25 May 2018, which was well attended by all the unions and the DMR as well as senior management from Sibanye-Stillwater. All the stakeholders committed to working together to make the workplaces safer, protect jobs and collaborate on all matters pertaining to the health, safety and wellbeing of workers. A safety pledge was jointly developed setting out the scope and spirit in which stakeholders agree to work further towards achieving ZERO HARM underpinning a substantial shared resolve to jointly strive to address the safety challenges. This is a significant achievement and the first time that I am aware that all stakeholders in the industry have committed to a compact of this nature. The Safety Summits are ongoing and joint implementation task teams will monitor and report on progress made in implementing the priority areas that were jointly identified by stakeholders at the summits.
Considering the substantial behavioural component involved in most fatal incidents, organisational culture and leadership are being reviewed to ensure that safety is inculcated as the foremost consideration in decisions at all levels. The need has been identified to re-instil our CARES values as the context within which we take all our decisions as a cornerstone of culture transformation. An intense programme to promote the responsible application of the provisions of Section 23 of the Mine Health and Safety Act, which affords employees the right to withdraw from unsafe conditions, confirms our top level commitment to safe operations.
In the US region, the operations have been fatality free since October 2011. The total injury frequency rate for H1 2018 increased to 18.2 compared to a rate of 12.7 per million hours in 2017, while the serious injury frequency rate also increased to 8.8 from 5.9 per million hours when comparing H1 2018 to 2017. Although no common theme with the increase in the injury rates could be established, US region management continues to address this disappointing increase as a priority.
A recognised expert in mine safety, Dr Kobus de Jager has been appointed as Group Head of Safe operations. Kobus has over 40 years’ experience in mine safety with academic and practical credentials in leadership and behavioural safety. His primary remit will be to fully review the Company’s safety management systems and processes.
FINANCIAL OVERVIEW
Group revenue of R23,910 million (US$1,942 million) for H1 2018 was 24% higher than for the comparable period in 2017. The inclusion of a full six months production from the US PGM operations which were acquired in May 2017, and higher PGM basket prices, offset lower revenue from the SA gold operations, which declined by R1,596 million (US$67 million). Revenue for the SA gold operations was impacted by the 13% decline in gold produced, primarily due to the closure of the Cooke operations in H2 2017 and the impact of operational disruptions at the Driefontein operations, compounded by a 1% decline in the average rand gold price received to R519,994/kg (US$1,314/oz).
Group adjusted EBITDA for the six months ended 30 June 2018 of R3,896 million (US$316million) increased by 26% year-on-year, positively impacting Group leverage measures.
Primarily due to the successful refinancing of the bridge loan, net finance expenses for H1 2018 decreased by R52 million (US$3 million) year-on-year to R1,193 million (US97 million).
A R710 million (US$58 million) gain on financial instruments compared to a R261 million (US$20 million) loss for the previous comparable period, was largely due to the decline in the market value of the US$450 million Convertible Bond during H1 2018. The financial results for H1 2017 were significantly affected by transaction and financing costs associated with the acquisition of Stillwater, and higher restructuring costs and impairments associated with the early, decisive action taken by the Group to address losses at its SA gold operations (resulting in the cessation of mining at the Cooke underground operations and jointly agreed interventions at the Beatrix West mine). These costs were compounded by a R1,077 million (US$82 million) occupational healthcare expense being recognised in anticipation of a possible settlement of class action claims and related costs, resulting in combined non-underlying costs of R4,423 million (US$335 million). Following the resumption of more normal operating activities, the costs (combined) for H1 2018, were R4,066 million (US$330 million) lower at R357 million (US$29 million) than for H1 2017. The Group recorded a net profit of R78 million (US$7 million) for H1 2018 compared with a loss of R4,803 million (US$364 million) for the comparable period in 2017.
The Normalised loss (attributable earnings adjusted for non-cash gains and losses, non-recurring items and share of result of equityaccounted investees) for the six months ended 30 June 2018 of R521 million (US$42 million), was significantly less than the R1,002 million (US$76 million) normalised loss reported for the first half of the previous year.
Please find further information in the attachement.
