Financial capital

G4:

G4-12
Organisation’s supply chain
G4-13
Significant changes during the reporting period regarding size, structure, ownership or supply chain
G4-EC1
Direct economic value generated and distributed
G4-EC4
Financial assistance received from government
G4-EC9
Proportion of spending on local suppliers at significant locations of operation
G4-LA14
Percentage of new suppliers that were screened using labour practices criteria
G4-LA15
Significant actual and potential negative impacts for labour practices in the supply chain and actions taken
G4-HR5
Operations and suppliers identified as having significant risk for incidents of child labour, and measures taken to contribute to the effective abolition of child labour
G4-HR6
Operations and suppliers identified as having significant risk for incidents of forced or compulsory labour, and measures to contribute to the elimination of all forms of forced or compulsory labour
G4-HR9
Total number and percentage of operations that have been subject to human rights reviews or impact assessments
G4-HR10
Percentage of new suppliers that were screened using human rights criteria
G4-SO6
Total value of political contributions by country and recipient/beneficiary
G4-SO9
Percentage of new suppliers that were screened using criteria for impacts on society
G4-SO10
Significant actual and potential negative impacts on society in the supply chain and actions taken
G4-EN32
Percentage of new suppliers screened using environmental criteria
G4-EN33
Significant actual and potential negative environmental impacts in the supply chain and actions taken

Key features

  • 17% increase in gold production to 44,474kg (1.430Moz)
  • 12% increase in tons milled
  • 4% decrease in total cash cost to R273,281/kg (US$885/oz)
  • Operating profit of R7.36 billion (28% increase)
  • R3.56 billion in net cash generated
  • Net debt of R499 million (87% decrease)
  • Dividends of R825 million paid to shareholders
  • 112 cents per share
  • 9% annualised yield based on the year-end share price (the highest in the industry)

Targets and objectives for 2013/2014

Critical targets for Sibanye have included:

Sibanye’s financial and operating performance is dealt with more comprehensively in the Group’s Integrated Report and Consolidated Financial Statements for 2013.

  • reducing the Group’s cost profile;
  • increasing gold production;
  • reducing debt;
  • returning cash to shareholders; and
  • extending operations’ lives.

FINANCIAL PERFORMANCE DURING 2013

Sibanye is one of the world’s 10 largest gold producers, and the largest individual producer of gold from South Africa. As such, the Group is a significant participant in global gold markets, the South African economy and the economies of the provinces in which it operates.

The financial sustainability of Sibanye is in the interests of all stakeholders and will ensure that:

  • shareholders receive an appropriate return on their investment over time;
  • the Group is able to continue to provide employment for thousands of people, which is consistent with the developmental objectives of the South African government;
  • the Group continues to make a meaningful contribution to the national fiscus through the payment of mining taxes and royalties; and
  • investment in the social upliftment and development of host and labour sending communities is facilitated in the long term.

OPERATING IN THE CURRENT ECONOMIC CLIMATE

The global gold market was challenging in 2013 with signs of economic recovery, a strengthening dollar and suggestions that asset purchases would be scaled back in the US, leading to significant sales from gold ETFs, driving the gold price down to three-year lows by year end. The gold price, which declined by around 29% during the year in dollar terms, was only partly offset by a weakening rand. This was aggravated by above-inflation cost increases, which squeezed operating margins across the industry. Sibanye managed to offset the declining gold price to some extent by reducing costs in 2013, but this will become increasingly difficult in future. For a detailed account of the Group’s financial position and the global gold market, see the Integrated Report 2013.

IMPLEMENTING A TURNAROUND

Sibanye inherited a strong safety culture with good and improving safety performance trends, large high-grade resources, and well-maintained assets from Gold Fields. In combination, these attributes set the scene for a significant turnaround by the focused management team. On the negative side, when these assets were located in the Gold Fields portfolio, they faced a declining production profile and a life-of-mine production plan, which assumed extraction of the existing reserve only without factoring in any investment to convert the substantial resources to reserves.

While production declined, costs continued to increase, reaching unacceptably high levels owing to inappropriate organisational structures, given the lower production levels, operational inefficiencies and a bloated service function.

Sibanye’s operating strategy, which was communicated at the time of its listing, is aimed at:

  • reducing costs with a view to reducing mining paylimits;
  • improving mining flexibility (lower paylimits result in an increase in reserves which can be extracted economically);
  • increasing margins;
  • optimising all capital, including the Group’s balance sheet;
  • developing strong cash flows; and
  • returning value to shareholders by way of robust dividends.

Reducing debt

Given the uncertain economic environment and volatile gold price, a judicious approach to managing debt has been taken. During the year, gross debt was reduced by 52% to R2.0 billion (US$193 million) from R4.2 billion at 31 December 2012, following repayments of R2.5 billion towards the Group’s bridge loan facility.

Goods and services procured by the Group

Sibanye is fully committed to the transformation of its procurement spend and is guided in this by the MPRDA and Mining Charter.

Transformation is a fundamental component of Sibanye’s sustainable development strategy and takes into account the Group’s approach to socio-economic development (SED) and enterprise development, including support of local BEE companies by procuring goods and services from local BEE companies where possible.

HDSA and BEE suppliers to Sibanye have preferred-supplier status subject to their competitiveness.

All suppliers have been screened:

  • using human rights, labour practices and environmental criteria; and
  • for actual and potential human rights, labour practices and environmental impacts in the supply chain.

For new suppliers joining Sibanye, the South African Revenue Service (SARS) Tax Clearance Certificate, and Chartered Institute of Purchasing and Supply (CIPS), BEE status along with any additional required International Organisation for Standardisation (ISO) or South African National Standards (SANS) standards, are verified. Independent vendors are screened for all of the above, including financial credibility, blacklisting and any criminal judgments against the company or directors. In addition, a site visit is done to confirm the suppliers’ actual processes and ensure that they are compliant with the required standards. The Fraud and Corruption Unit within Sibanye also verifies that the information received from the supplier is correct.

Procurement expenditure by Sibanye amounted to R9,145 million in 2013, of which R5,065 million related to discretionary spend. Non-discretionary spend includes expenditure on parastatal entities, banks and government departments, among others. Of the discretionary spend during 2013, 56% (R2,858 million) was spent with BEE suppliers. The Mining Charter requires that mining companies procure 40% of their capital goods, 50% of their consumer goods and 70% of their services from BEE suppliers by 2014. Sibanye is aware of the current and future social and community-development challenges in South Africa, and recognises the role it has to play in the areas in which it operates.

In order to develop an environment exposing local entrepreneurs to Sibanye’s supply chain and to ensure that they are equipped to become economically independent and sustainable, the Group has developed and implemented an online registration system for all prospective suppliers. Further, Sibanye requires existing suppliers and service providers to become BEE-compliant. The process of engagement will begin in February 2014, to be concluded by June 2014. Plans are also in place to collaborate in the establishment of an Enterprise Development Hub at each operation with mining companies that already have these facilities in place. This would provide much-needed services, such as business training and access to the Sibanye Gold Vendor Portal to local entrepreneurs and enterprises. The plan is to have a number of these hubs commissioned by April 2014.

BEE and transformation

Sibanye complies with the Mining Charter’s 2014 BEE equity target of 26%, and is fully committed to achieving broad-based transformation across all levels of the Group. See the Human Capital: Employment equity and transformation section.

Adding value

The Value-added Statement below details the value generated and distributed by Sibanye during the year, and its implications for the Group’s stakeholders. The statement also illustrates how this value was distributed, taking into account the amounts retained and reinvested in the Group for the replacement of assets and development of operations. Based on this statement, Sibanye created value of R14.35 billion in 2013.

  2012 2013
  % Rm % Rm
Revenue   16,554   19,331
Less: Purchased goods and services in order to operate and produce refined metals   (4,245)   (5,000)
Value added by operations   12,309   14,332
Add:        
Share of results of equity-accounted investees after taxation   93   52
Investment income   106   160
Finance expense   (63)   (101)
Net other expenditure   (101)   (90)
Total value created   12,344   14,353
Value distributed        
Employees        
Salaries and wages 48.5 (5,981) 46.8 (6,717)
Contributions to retirement benefit funds 4.2 (515) 3.8 (549)
Contributions to healthcare funds 3.7 (453) 3.1 (450)
Government        
Mining and income taxation 3.8 (475) 5.6 (810)
Deferred taxation -6.8 840 -3.9 554
Royalties 2.3 (282) 2.9 (415)
Providers of capital        
Dividends 5.9 (731) 1.9 (272)
Finance expense on borrowings 0.9 (114) 2.2 (319)
Broader community        
Corporate social investment 0.2 (20) 0.2 (24)
Reinvested in the Group        
Amortisation, depreciation and impairments 19.1 (2,363) 27.3 (3,925)
Retained income 18.2 (2,249) 9.9 (1,426)
Total value distributed 100.0 (12,344) 100.0 (14,353)

Realising value for shareholders

Sibanye’s dividend policy is to pay between 25% and 35% of normalised earnings to shareholders. During the year, the Group declared dividends of R825 million to shareholders. This has positioned Sibanye as offering the highest dividend yield in the sector globally.

PAYMENTS TO EMPLOYEES

The amount paid to employees during the year totalled R6,156 million compared with R5,791 million in 2012. The restructuring of the Sibanye business, following a review of the entire Group with a view to right-sizing the organisation to align with longer-term sustainable production levels, will reduce the Group’s payroll in future. Employee costs comprise around 51% of total costs.

The impact of the new wage increase on the wage bill will be around R480 million per annum.

Benefits provided to full-time employees include membership of pension or provident funds; housing and living-out allowances (LOAs); access to medical care; annual, sick and family responsibility leave; performance bonuses/profit share; annual service increments; life and disability cover; study assistance; and maternity and paternity leave.

SOCIO-ECONOMIC DEVELOPMENT EXPENDITURE

Sibanye’s SED initiatives are typically aligned to the Group’s SLPs.

During the year, the total SED expenditure amounted to R1,050 million (2012: R853 million). See the Social Capital section.

PAYMENTS TO GOVERNMENT

In 2013, Sibanye paid R305 million in taxation (2012: R980 million) and R249 million in mining royalties (2012: R414 million). The Group did not receive any financial assistance from government.

Additionally, Sibanye does not believe in making political donations to any beneficiary or country.

RETURNS TO SHAREHOLDERS

Returns to shareholders are direct, in the form of dividends, and indirect, in the form of share price appreciation.

During 2013 and 2014, the Group declared dividends of R825 million of which the interim dividend of R272 million and final dividend of R553 million was paid on 7 October 2013 and 17 March 2014 respectively. The 112 cents per share (37 cents per share interim dividend and 75 cents per share final dividend) is a 9% annualised yield based on the share price of R12.30 on 31 December 2013.

INVESTING CAPITAL

Sibanye invested R2,902 million in capital expenditure in 2013 of which R1,019 million (35%) was sustaining capital to maintain its infrastructure and R1,883 million (65%) was spent on ore-reserve development.

Sibanye’s share price: 11 February 2013 to 31 December 2013 (South African cents) [graph]