Sibanye-Stillwater has flagged South Africa’s worsening energy crisis and an increase in organised crime as occasioning an increasingly uncertain operating framework that has further been compounded by a plunge in its platinum production despite its gold operations swinging back to profitability.
Electricity supply challenges hammered Sibanye-Stillwater in its South African and Zimbabwean operations during the quarter to the end of March. The company, just like other South African corporates, is now investing heavily in alternative power supply solutions.
“There are no immediate solutions to improve national energy security in South Africa. We are pursuing self-generation projects that will improve the security of energy supply. The economic and operating outlook remains challenging and uncertain,” Sibanye-Stillwater said in a March 2023 quarterly trading update yesterday.
The deteriorating “quality of public services and increase in organised criminal activity in South Africa has become an increasing risk,” Sibanye further commented.
It said: “Eskom’s decreasing energy availability factor is having a major impact on the South African economy and mining industry as the increasing frequency and extent of load shedding and load curtailment measures disrupts operations.”
The impact on production from the increased load curtailment by Eskom, heightened criminal activity, specifically related to copper theft, and a 19% decline in the rand 4E platinum group metals (PGM) basket price to R36433 per ounce contributed to a 43% year-on-year decline in adjusted Ebitda earnings to R7.0 billion. This compares negatively to Ebitda earnings for the SA PGM operations of R12.1 billion in the 2022 first quarter period.
Platinum production from the South African operations for the quarter amounted to 403 699 ounces, a 4% lowering on the 2022 comparative first quarter period. There was, however, some respite from a jump in third-party concentrate purchases, which soared by 124% to 23 908 ounces for the latest period owing to “higher concentrate deliveries” from third parties.
Sibanye-Stillwater’s share of production from the joint venture operation with Impala Platinum in Zimbabwe, Mimosa, was 6% lower compared to the previous year. The company attributed the lowering of production from Mimosa to “sporadic regional power interruptions and a planned five-day plant shutdown” in March 2023.
Sustaining costs for Mimosa for the first quarter period under review climbed up by 49% on a year-on-year basis to 24 360 per ounce as a result of the lower production. Sustaining capital for Mimosa for the same period shot up by a massive 80% to R237 million as a consequence of “spending on the process plant optimisation, expansion of the concentrator capacity, and a new tailings” storage facility.
While the platinum group metals division faced challenges, Sibanye-Stillwater’s gold productions swung back to profitability during the quarter period to end March. This was on the back of production build-up in the second half of 2022 following the industrial action that rocked the company, followed by a wage agreement.
The South African gold operations also benefited from a strong gold price environment, helping the bullion operations to lift Ebitda earnings from a loss of R680 million last year to R774m in the quarter under review.
“The SA managed gold operations are benefiting from an appropriately structured, inflation linked wage agreement settled in 2022, which positions the group well for the record gold price recorded in early May 2023.”
Production from the South African gold operations, including DRDGold for the quarter amounted to 6229kg, a 46% surge on the previous year’s contrasting period. However, power supply continues pose challenges to “normal operating procedures and causes an increase in operating” costs.
Far from the South African mixed prospects and impacts of power supply deficits, Sibanye-Stillwater reported good progress with its diversification into battery and renewable energy metals. In March, it commenced construction of a lithium refinery at its Keliber project in Finland.
In the US, Sibanye-Stillwater’s Rhyolite Ridge joint venture operation received a new $700 million (R12.9 billion) condition loan from the United States Department of Energy. Aiding its financial position, Sibanye-Stillwater recently concluded a refinancing deal, increasing its revolving credit facility with a syndicate of global banks from $600m to $1bn.
This has “enhanced liquidity and financial flexibility, thus providing strategic optionality for new opportunities for growth and diversification aligned with our strategy,” the company said.
The increasingly supportive environment for Sibanye-Stillwater in Europe is in stark contrast to the worsening operating environment in South Africa, which it says has continued to regress.
The Fraser Institute Annual Survey of Mining Companies 2022 ranked South Africa in the bottom ten of global mining jurisdictions for the second year at 57 out of 62 countries in the overall Investment Attractiveness Index.
BUSINESS REPORT