Integrated Annual Report 2014

CFO’s report

The year under review was operationally and financially consistent with our forecast. A solid production result again underpinned delivery of an industry leading dividend yield to shareholders. This consistency resulted in our share price significantly outperforming most listed global gold companies and the gold price ending the year as one of the top performing stocks on the JSE. Our share price increased by 83% in 2014, lifting our market capitalisation to R20.3 billion by 31 December 2014.

This performance reflects growing market acceptance of our ability to deliver on Sibanye’s strategy as well as an appreciation of our inherent value offering. We have proven the effectiveness of our operating model and structures, and our ability to turn around mature mines. This places us in an excellent position to maintain the performance at our existing operations as well as growing the company through smart, value-accretive acquisitions.


In 2014, the average US dollar gold price received declined by 10% to US$1,267/oz (2013:US$1,408/oz) while the 13% increase in the average exchange rate to R10.82/US$ (2013: R9.60/US$), meant the rand price of gold received was 1% higher at R440,615/kg (2013: R434,663/kg).


Sibanye produced 49,432kg (1.59Moz) of gold in 2014. This was in line with prior guidance, despite the loss of over 500kg due to the underground fire at Driefontein early in the year and the impact of Eskom load shedding in the latter half of the December quarter on the operations.

Uranium production from Cooke continued uninterrupted from May 2014, resulting in inventory of approximately 180,000lb at year end. No uranium was sold during the year.


Revenue increased 13% to R21.8 billion, from R19.3 billion in 2013. The 11% year-on-year increase in production translated into R2.2 billion additional revenue. The higher gold price contributed R300 million to revenue for the year.

Operating costs increased by R2.3 billion or 20% year-on-year, primarily due to the incorporation of Cooke from June 2014. Cooke added R1.7 billion to operating costs. Costs at Beatrix, Driefontein and Kloof rose by R0.6 billion or 5% mainly due to increased volumes treated. Operating cost on a per kilogram basis at Beatrix, Driefontein and Kloof rose by only 4% due to the 1% increase in gold production.

The average All-in sustaining cost per kilogram, the total cost of producing each kilogram of gold, rose by 3% at Beatrix, Driefontein and Kloof. This was substantially below the national consumer price inflation rate of 6.1%, and reflected operational restructuring and our focused approach to containing or reducing costs. This modest increase indicates that the Group managed to overcome the substantial increases in labour and electricity costs that, respectively, contribute some 47% and 19% of total operating costs and which are beyond the Group’s control.

Labour costs increased by 8% year-on-year due to the inclusion of the Cooke assets for seven months. Labour cost at Beatrix, Driefontein and Kloof, however, reduced year-on-year mainly due to the operational rightsizing undertaken during the 2013 year. The overall cost of electricity rose by 18%, again due to the inclusion of the Cooke assets. Excluding the Cooke assets, the increase was only 5%, which was significantly lower than the regulated tariff increase. The fact that unit costs rose by a substantially lower rate than those of labour, power and general inflation is indicative of our strict control of costs and the progressive, non-disruptive rightsizing of our employee base.

For the 2015 financial year and with the full integration and consolidation of Cooke, we are targeting average unit cost increases of between 5% and 6%. Again, this should be seen against our expectation of above inflation increases. We will, however, be relentless in our efforts to work out these inflationary increases.

Operating profit of R7.5 billion was in line with the R7.4 billion reported the year before. Profit for the year, however, dipped 11% to R1.5 billion from R1.7 billion in 2013 mainly as a result of a net loss on the 33.1% share in Rand Refinery of R480 million.

Earnings attributable to the owners of Sibanye for 2014 of R1.6 billion compared with R1.7 billion in 2013 were affected by the loss on Rand Refinery, share-based payments, losses on financial instruments and foreign exchange, impairments, tax and royalties.

Headline earnings, after adjusting earnings for a R120 million impairment charge in respect of Sibanye’s investment in Rand Refinery, a R114 million impairment of the Python Plant and a R360 million impairment reversal of Beatrix West Section, were 39% lower at R1.4 billion.

Like-for-like comparisons between earnings per share (EPS) and headline earnings per share (HEPS) for the year ended 31 December 2014 and the comparable period in 2013 are distorted as a result of a 28% increase in the weighted average number of shares year-on-year. This difference is primarily due to the fact that, until its unbundling from Gold Fields in mid-February 2013, Sibanye only had 1,000 shares in issue. The weighted average number of shares in issue in 2013, was 650.6 million, compared with the 735.1 million shares in issue at 31 December 2013.

For the acquisition of the Cooke assets during May 2014, Sibanye also issued 156.9 million new ordinary shares to Gold One, which resulted in the weighted average number of shares in issue for the year ended 31 December 2014 being 835.9 million with 898.8 million shares in issue at year end.

Mainly as a consequence of the difference in the weighted average number of shares between the periods, EPS and HEPS for the year ended 31 December 2014 were 28% and 52% lower respectively than the reported EPS of 260 cents per share and HEPS of 355 cents per share for the year ended 31 December 2013. At 31 December 2014, EPS was 186 cents per share and HEPS was 170 and cents per share.


Group debt increased from R2.0 billion to R3.2 billion mainly due to the inclusion of the Burnstone Debt and the funding of Rand Refinery. The R1.1 billion debt attributable to the Burnstone project has no recourse to Sibanye’s balance sheet and is ring-fenced to the Burnstone project. The cash inflows from the Burnstone mine will be applied to reduce this debt.

Sibanye repaid R656 million debt assumed through the acquisitions of Wits Gold and Cooke, and repaid R900 million under the R4.5 billion Facilities. On various dates during 2014, Sibanye made additional drawdowns of R500 million and, on 18 December 2014, Sibanye borrowed a further R385 million to fund its portion of the Rand Refinery loan, increasing its debt under the R4.5 billion Facility to just below R2.0 billion.

Net debt, excluding the Burnstone Debt, increased from R0.5 billion to R1.5 billion. This increase is post cash outflows of unusually high royalty, tax and dividend payments of approximately R3.0 billion due to the timing of the year end, the repayment of R1.6 billion debt and the R415 million purchase consideration for Wits Gold.


Cash generated by operating activities was steady year-on-year at R7.1 billion. Net cash inflows from operating activities decreased from R6.4 billion in 2013 to R4.1 billion in 2014. The items contributing to the year-onyear decrease of R2.3 billion were due to the factors in the table below:

  R million
Increase in cash generated by operations mainly due to increase in gold production 241
Increase in cash-settled share-based payments paid (163)
Decrease in release from working capital (354)
Decrease in interest paid 132
Increase in royalties paid1 (401)
Increase in taxes paid1 (1,042)
Increase in dividends paid (733)
Other 13
Decrease in cash flows from operating activities (2,307)
  1. 1The increase in royalties and taxation paid was due to year-end payments of R594 million.

Free cash flow – cash from operating activities before dividends, less additions to property, plant and equipment at R1.8 billion – was 52% lower due to the aforementioned factors.

Cash outflows from investing activities increased from R3,072 million in 2013 to R4,309 million in 2014 mainly due to an increase in capital expenditure of R349 million, the acquisitions of Wits Gold, Cooke and Burnstone for R616 million and the loan advanced to Rand Refinery of R385 million.

Cash and cash equivalents at year end amounted to R0.6 billion.


Capital expenditure during the year under review amounted to R3.3 billion and was largely devoted to maintaining infrastructure and to developing ore reserves. ORD has increased substantially in the past two years as we continue to increase flexibility at our operations in order to ensure sustainability of production.

Of the R3.3 billion capital expenditure in 2014, almost two thirds or R2.1 billion was directed towards ORD across the Group. Of the remainder, some R1.0 billion was directed towards maintaining infrastructure with the balance of R133 million spent on projects at the Cooke operations and the Burnstone mine.

Capital expenditure is planned to increase by 10% to R3.6 billion largely due to a R400 million increase in expenditure on projects to extend the operating lives of the mines and on growth projects such as Burnstone.


Reflecting the Board’s confidence in the outlook for the Group, a final dividend of 62 SA cents per share was declared on 19 February 2015 in respect of the six months ended 31 December 2014. This brought the full year dividend to 112 SA cents per share which, at 44% of normalised earnings, was above the range of between 25% and 35% defined by Sibanye’s dividend policy. Normalised earnings are defined as basic earnings excluding gains and losses on foreign exchange and financial instruments, non-recurring items and its share of results of associates after taxation.


2014 was a year of financial and operational consistency. The industry leading dividend of 112 SA cents per share was underpinned by solid production results and our relentless efforts to mitigate inflationary cost pressures. All-in sustaining cost for the Group of R372,492/kg (US$1,071/oz) was in line with guidance, and annual increases were maintained at well below historical mining inflation rates.

Charl Keyter
Chief Financial Officer

23 March 2015