Integrated Annual Report 2014

Chief Executive’s report

Reported G4 indicators:
  • G4-1
  • G4-2
  • G4-4
  • G4-10
  • G4-11
  • G4-15
  • G4-56
  • G4-EN6
  • MM3
  • G4-LA6


Sibanye is the largest producer of South African gold with its production sourced entirely from its operations in South Africa. Our vision is to create superior value for all of our stakeholders. Our strategy is underpinned by our commitment to pay our shareholders sustainable, industry leading dividends. We will achieve this vision by optimising our current operations and extending their operating lives, and by leveraging existing infrastructure to enhance the inherent value of brownfields and greenfield projects. We will also consider making acquisitions in the gold and other mineral sectors if they enhance or sustain our ability to pay an industry leading dividend to our shareholders.

We are comfortable investing in South Africa, which offers significant opportunities for us to continue to deliver sustainable value for all of our stakeholders. South Africa offers well-understood and simple geology, and still contains some of the highest grade gold resources in the world as well as an abundance of skilled and experienced mining practitioners. The areas in which we operate are accessible via first-class infrastructure and the established mining industry is serviced by well-developed and innovative associated industries. While regulatory uncertainty is a factor, which has inhibited investment in recent years, the country has sound financial and judicial systems and a world-class Constitution, which protects individual and corporate rights.

By applying our experience in the South African mining industry and understanding of the regulatory and labour environment, we intend to grow our business in the gold and in other mineral sectors for the benefit of all stakeholders. By applying our proven operating model and deep-level, hard-rock mining capability to new acquisitions and projects, we believe we can continue to unlock value, in much the same way we have by turning around Sibanye’s existing mines. Our high-quality, cash-generative gold operations and robust balance sheet, underpin our ability to deliver on this vision while continuing to pay sustainable, industry leading dividends to shareholders.

We are aware, however, that in order to achieve our goals and re-establish the primacy of mining to South Africa’s economic development in the eyes of government and all the country’s people, we are going to have to adopt a prominent leadership role in the industry. I am confident that we have laid a solid foundation in the last two years, which will allow this.


Our focus on establishing a safe, production-friendly operating environment, through the ongoing implementation of our health and safety strategy and initiatives to reduce risk continues, as we strive towards our goal of zero harm. I am pleased to report that our safety performance improved significantly towards the end of the year. Following specific management intervention (mentioned in the September 2014 results report), Beatrix recorded a fatality free December 2014 quarter, with Driefontein and Kloof consecutively experiencing no fatalities for seven and six months respectively. Fatalities at Beatrix, Driefontein and Kloof were, as a result, lower year-on-year, with eight fatalities recorded during 2014, compared with nine during 2013. Cooke suffered a total of three fatal accidents during the seven months of incorporation into Sibanye. The majority of these incidents were a result of avoidable human error and the safety performance at Cooke is being addressed through ongoing implementation of Sibanye’s safety management systems and practices.

2014 in review

2014 was a year of operational and financial consolidation for Sibanye, after significant restructuring in 2013. Our primary objective, during the year, was to entrench the new operating model and operational structures, which had been successfully implemented at the Beatrix, Driefontein and Kloof operations in 2013, whilst integrating the newly acquired Cooke Operation (Cooke) into the Group. At the same time, cognisant of the importance of ensuring the consistency and sustainability of our performance, we established dedicated internal capacity focused on securing the long-term future of our company. A dedicated projects team is assessing all organic opportunities within the Group while a new business development function was established to consider external, value-accretive opportunities, ensuring that the operations focus on delivery. We have also established a Safe Technology function which will explore ways to modernise the operations, by using new technologies to improve working conditions and make the working environment safer for employees, while at the same time improving productivity and reducing costs.

Sibanye annual production and total cash cost (000oz) [chart]

We are confident that we have now convincingly arrested the historical declining production and rising cost trends at our core Beatrix, Driefontein and Kloof operations as represented in the graph above. Production at these operations has stabilised at approximately 45,000kg (1.45Moz) and gold Reserves increased for a second consecutive year, despite continued depletion as a result of our operating activities. The acquisitions of the Cooke assets and Wits Gold in mid-2014, added significant optionality to our sizeable gold Resource and Reserve base, as well as adding 60Mlb of uranium Reserves, predominantly contained in low-cost surface dumps.

Gold Reserves (Moz) [chart]

The integration of Cooke will also result in Sibanye achieving its strategic objective of bringing lower grade gold Resources to account through the production of by-product uranium. Sibanye is now well-positioned to exploit extensive lower grade resources at the Cooke Operations profitably. In addition, Sibanye will now be able to enter into long-term uranium contracts as a result of the regular and consistent delivery of ammonium diuranate to Nufcor. Uranium production from Cooke continued uninterrupted from May 2014, resulting in uranium inventory of approximately 180,000lb at year-end.

Group gold production for 2014, including a 4,305kg (138,400oz) contribution from Cooke, increased by 11% year-on-year to 49.432kg (1.59Moz), compared with 44,474kg (1.43Moz) in 2013. Group Total cash cost for the year of R295,246/kg (US$849/oz) and All-in sustaining cost of R372,492/kg (US$1,071/oz) were in line with guidance, with the annual cost increases maintained at well below historical mining inflation rates. Group unit cost per ton milled declined by 10% to R785/t (2013: R879/t).

The outlook for 2015 is for consistent forecast gold production of between 50,000kg (1.61Moz) and 52,000kg (1.67Moz), with Total cash cost forecast at between R305,000/kg (US$850/oz) and R315,000/kg (US$875/oz). All-in sustaining cost is forecast to be between R380,000/kg (US1,055/oz) and R395,000/kg (US$1,100/oz), and All-in cost forecast to be between R385,000/kg (US$1,070/oz) and R400,000/kg (US$1,110/oz). Approximately 250,000lb of by-product uranium production is forecast. Capital expenditure is forecast at R3.6 billion (US$320 million), and is higher year-on-year due to an additional R400 million (US$36 million) which will be spent on projects. We will continue to invest appropriately in our current operations in order to sustain current production levels.

Supported by the solid operating performance and stable outlook for 2015, the Board declared full year dividends of R1.0 billion (2013: R272 million), which was equivalent to a 5% yield at 31 December 2014. This is significantly higher than the average global gold industry dividend yield, despite the 83% increase in Sibanye’s share price during the year. Sibanye’s share price appreciated by 83% from R12.30 at end 2013 to R22.55 at end 2014 after closing at a high of R29.52 on 23 July 2014. This compares with the 12% increase in the JSE gold index over the same period.

Relative dividend yield (%) [chart]
Sibanye relative share price performance (%) [chart]


We are committed to our stated strategy of rewarding our shareholders by paying sustainable, industry leading dividends. This dividend is the first call on cash, and our commitment to the dividend strategy introduces an element of capital discipline, with projects or acquisitions only pursued if they support or enhance the dividend.

The acquisitions of the Cooke assets and Wits Gold, which were concluded in May 2014, are consistent with this strategy. These acquisitions will allow us to leverage regional and operational synergies in order to extend the Group operating life, thereby sustaining the dividend for longer and improving the Group’s return on invested capital:

  • The consolidation of the significant uranium and gold Reserves contained in Cooke’s tailings storage facilities (TSFs) with the high grade gold tailings storage facilities already owned by Sibanye, has improved the economic viability of developing the high volume WRTRP. Combining the tailings storage facilities allows for phasing of the project capital, thereby lowering the operational risk and improving the economics. Consolidating the existing gold processing infrastructure at Driefontein and Kloof with the Ezulwini gold and uranium plant into the project will also allow for better project phasing and early cash generation with relatively low upfront capital requirements.
  • Wits Gold’s Bloemhoek and De Bron- Merriespruit projects are located North of and adjacent to Beatrix North Section in the Free State province. The Sibanye project team is currently assessing the potential to access parts of the Bloemhoek lease area from the underground workings at Beatrix North Section, potentially extending the life of the mine by five to 10 years. The close proximity of the projects to Beatrix could also negate the construction of stand-alone surface infrastructure, reducing the required project capital and thereby enhancing project returns.

In the past, I discussed how Group production could be maintained at over 1.5Moz per annum until at least 2028 and could be funded from internal cash flow without compromising the dividend (assuming a constant real gold price of R430,000/kg), if all of Sibanye’s organic projects were to be developed on current assumptions. Since then, our centrally managed projects team, which was established in mid-2014, has made significant progress in reviewing and classifying all of the organic projects.

Following intensive assessment and review, key projects have been identified and prioritised, with additional work required on others. Projects which have been prioritised and will be advanced in 2015 include:

  • The Kloof 4 shaft and Driefontein 5 shaft below infrastructure projects: Pre-feasibility studies on the viability of accessing resources below current infrastructure, by means of the development of declines were completed in 2014. The pre-feasibility studies for both projects suggest robust economic returns that exceed the Group’s internal investment hurdle rates. These projects have consequently been included in Group gold Reserves in 2015 and into the life of mine production plan. The below infrastructure projects add approximately 1.1Moz and 0.5Moz to the Driefontein and Kloof gold Mineral Reserves, respectively. Additional detailed feasibility studies are scheduled for completion during the second quarter of 2015.
  • The WRTRP: A phased development approach has been adopted for this significant surface dump retreatment project. A detailed feasibility study, which is due for completion during the first quarter of 2015, is specifically considering how to leverage available surface infrastructure, including existing surface gold plants at Driefontein and Kloof and uranium processing capacity at the Ezulwini plant in order to generate early cash flow and enhance value.
  • The Burnstone project: Capital expenditure of R286 million was approved by the Sibanye Board in 2014 to provide working capital, complete critical required infrastructure at the Burnstone project and to complete a feasibility study. The Infrastructure project, which commenced in July 2014 and is planned for completion in September 2015, involves two main areas of focus: completion of the shaft infrastructure and pumping facilities underground to allow permanent dewatering. A feasibility study reviewing and assessing the viability of the entire project is well advanced and is on schedule for completion during the second quarter of 2015. Revised geological modelling and mineral resource estimation underpinned an updated 8.9Moz gold Mineral Resource. This will form the base for the feasibility study and associated development and life of mine plan.
  • The Beatrix West Section, Beisa project: A pre-feasibility study on this gold and uranium resource was completed in December 2014. Various regulatory approvals and permits are required before this project can be advanced. Applications for the various permits and approvals will commence during 2015 and ongoing optimisation and review of the prefeasibility study will continue in parallel with the permitting process.

While our high-quality gold operations underpin our ability to deliver a sustainable dividend to shareholders and gold production will always be an important component of our asset portfolio, delivery on our dividend strategy is not necessarily restricted to the gold sector. We are confident that our operating model and structures can be applied to unlock value in other sectors in the same way we have created value in Sibanye.

In this regard, we announced in February 2014 that we would be interested in participating in any restructuring in the platinum industry if any opportunities that arose were accretive to earnings and cash flow on a per share basis in the near to medium term. The technical similarities between tabular intermediate to deep, hard rock mining in both the South African gold and platinum mines, makes platinum a natural area for application of Sibanye’s core mining competences. Sibanye’s operating model, which has started to deliver operational turnaround at the mature deep-level gold mining operations, is well suited to deliver similar value to platinum mining operations. Our platinum ambitions remain firmly in place and we will continue to participate in the Amplats auction process as well as assessing other opportunities in 2015. I again wish to stress however, that commodity diversification is not an imperative and will not be pursued if it is not value-accretive and has any negative implications for the dividend strategy.

We will also continue to pursue opportunities which may arise in the South African gold sector, but see less value in the purchase of specific assets or mines assets, following the logical, strategic acquisitions of Cooke and Wits Gold. We believe that it is only through larger, company scale consolidation, that significant corporate and other overhead costs can be removed, in order to unlock sustainable value in the industry.


The South African gold industry will again be entering into negotiations with organised labour in mid-2015, focused on annual wage increases. The structure of organised labour in South Africa has undergone significant change since 2012, with the emergence of younger unions such as the Association of Mineworkers and Construction Union (AMCU), which has gained significant membership in an industry previously dominated by a single union, the National Union of Mineworkers (NUM). This has introduced some complexity and uncertainty into the upcoming gold sector wage negotiations, particularly against the backdrop of lengthy and hostile negotiations in the platinum sector in 2014.

The gold industry is an essential constituent of the South African economy, providing much needed employment, supporting small and medium enterprises, developing communities and generating a significant amount of foreign income. As such, the profitability and sustainability of the gold industry is critical to the successful future development and growth of the economy. Sibanye’s superior value creation feeds through to many sectors of the economy.

We will endeavour to avoid a similarly damaging outcome from the 2015 gold wage negotiations, and hope that the devastating impact on all stakeholders of the platinum sector negotiations and the lessons learned, will result in a much more mature and cooperative process, we will also ensure that we do not compromise the sustainability of the business by acceding to unrealistic demands from the unions.

In the past two years, we have put significant emphasis on improving living and working conditions for our employees and attempting to address the challenges they face in their daily lives. Wages in the gold industry are, on average, significantly higher than in many other industries and professions in South Africa, if one considers the numerous benefits and bonuses that are earned. Various historical and external factors have however significantly reduced the take home pay of many employees which, compounded by inadequate service delivery and other factors, has negatively impacted on the living standards of employees.

We have begun addressing critical issues such as indebtedness by providing financial literacy programmes and debt counselling to over 9,000 employees and community members and are investigating debt consolidation with third parties in order to provide affordable financing for employees. We have also developed a low-cost housing model which will facilitate ownership of property for all of our employees, which are affordable using existing live out allowances.

We also continue to actively engage communities around our operations and in labour-sending areas in order to, where possible, address their developmental needs.

We recognise the importance that all our stakeholders play in ensuring the sustainability of our business and our efforts are guided and underpinned by our vision of delivering superior value to all of our stakeholders through our culture of caring. Through continued delivery of this vision, we expect that our employees and communities will come to appreciate the importance that a profitable and sustainable business has for them and the other stakeholders who rely on the gold industry. We will however, obviously be prepared for any eventuality that may arise and have prepared plans to minimise losses and ensure our long-term viability in the event of an extended strike.


Shortly after listing in 2013, we stated that we would be exploring alternative sources of long-term electricity supply in response to the risk that uncertain, inconsistent and increasingly expensive power supplied by the state-owned power utility, Eskom posed to our current operations and future development. Ongoing delays at Eskom’s new capacity build projects and a lack of critical maintenance at its existing stations, has resulted in regular supply interruption, which is likely to continue for the foreseeable future.

While we have identified and implemented numerous measures that have enabled us to reduce electricity consumption by approximately 20% since 2007, spiralling capital costs, have led to rapidly escalating power costs for consumers as Eskom has consecutively implemented punitive annual cost increases. Power costs as a percentage of operating costs at Sibanye, have swelled from approximately 9% in 2007 to over 20% in 2015, with supply irregular and uncertain.

In order to mitigate the short-term risk, we have continued to work with Eskom to manage and minimise the impact of load shedding on our operations. It was already clear in 2013 though, that security of electricity supply and rising costs would remain an issue for many years to come and, in order to mitigate this risk, we began exploring a number of alternative supply options to reduce reliance on Eskom.

In 2014 we completed a pre-feasibility study investigating the potential of solar power as an alternative power source. The pre-feasibility study confirmed that solar power provides an economically competitive solution to Sibanye’s electricity requirements, which will partially insulate us from the effects of interruptions in Eskom supply. We are contemplating a phased R3 billion investment, with involvement of financial partners, in establishing solar photovoltaic generating plant with a peak generating capacity of 150MW. This represents a substantial portion of Sibanye's overall 500MW power demand, and will provide around 10% of our electrical energy requirements when averaged over the course of a day. A site large enough to host a 150MW installation with limited potential for other land use has been identified close to Driefontein. We intend to launch permitting applications early in 2015, and anticipate that we will be able to start independent generation of captive electricity for our operations during 2017.

Sibanye has undertaken several studies into other alternative energy sources that we consider reliable and over which we will be able to exercise some control. To this end, we are completing an in-depth investigation into coal fired power stations varying in size from 200MW to 600MW. A key aspect of this will be ensuring reliable quality coal sources. We are also engaging with technology partners in order to develop a deeper insight into independent power generation. It is our intention to become fully independent of Eskom over the next few years, as this will make a material difference to production costs.


Regulatory compliance has been another area which has caused concern among investors as certain elements of the Mining Charter are ambiguous. We welcome the upcoming mining sector audit process by the Department of Mineral Resources, and expect it to provide welcome clarity and greater certainty. We have deployed significant resources and effort in the last two years to ensuring the Group’s compliance with the Mining Charter, and we are confident of our compliance and legal position ahead of the audit by the Department of Mineral Resources.


Sibanye, underpinned by its high-quality operations, which generate solid, consistent cash flow, will continue to deliver superior value for all stakeholders, consistent with its vision. Sibanye is well-positioned to sustain its cash flow by developing organic projects and is well positioned financially and strategically to take advantage of any acquisition opportunities which meet our investment criteria and support our dividend strategy.

2015 poses some challenges, particularly in the first six months, but we believe we have positioned the Group well to endure and overcome any scenarios we might face. We should emerge in the latter part of the year with a clearer understanding of our position, particularly in relation to our labour relations environment and regulatory compliance. This is positive and will allow us to make the strategic decisions which will allow us to achieve our long-term goals.

I would like to thank my Executive colleagues and the Board for its support and guidance throughout the year and would like to thank the rest of our team at Sibanye for the commitment and co-operation shown throughout the year. I am positive that by continuing to embrace our CARE values and working together as a team, we can build on the foundation we have laid and develop Sibanye into the leading South African mining company it can be.

Neal Froneman
Chief Executive Officer

23 March 2015