Perspective from the Chair
It gives me great pleasure to endorse this integrated annual report for all our stakeholders. It seeks to illustrate the various components of our business, executive management’s significant efforts in delivering on its strategy as well as its extensive stakeholder interventions. These efforts have been duly rewarded in Sibanye’s top performance on the JSE. I am proud to report that in less than two years, Sibanye has taken its place among the country’s gold champions and as one of the world’s top producers of the precious metal.
Management has also managed the balance sheet well, maintaining a net debt to EBITDA ratio of 0.20 times, which is low compared to its peers. This was despite acquisitions made during the year and the extension of financing to Rand Refinery. Operationally, a creditworthy performance was recorded, with excellent production numbers, especially in the last quarter of the year, targeting best-ever output in 2015.
Given the Group’s genesis, some radical changes were required in the first year of operation. This was followed in 2014 by a period of consolidation: entrenching our new operating model, and integrating the newly acquired Cooke and Wits Gold assets.
These acquisitions are consistent with our strategy of creating value by extending the operating lives of Group assets, and support the dividend strategy, by leveraging our regional presence and existing infrastructure. We assumed control of the Cooke underground and surface operations from Gold One; concluded the acquisition of Wits Gold, a JSE and Toronto Stock Exchange-listed gold and uranium exploration company with significant gold resources in South Africa; and exercised the option held by Wits Gold to acquire the Burnstone gold mine from its previous owner, Great Basin Gold.
Management has also signalled that it is not limited to seeking value in the gold sector alone but will consider diversification into other sectors if this can be proven to be value-accretive and supports the dividend strategy. An example is the well-publicised interest shown in the platinum sector in early 2014. Sibanye has identified an opportunity to leverage its deep-level, hard rock mining capabilities, and proven operating structures and strategy, to the platinum mines, which share many operational similarities. The platinum industry was also in a distressed position with looming wage negotiations and significantly indebted balance sheets. Sibanye will continue to assess opportunities in this area but has thus far not identified opportunities presenting suitable value.
Gold is still our core business with our high-quality, cash-generative mines key to our future success and we continue to explore value-accretive opportunities in the sector. A previously underdeveloped opportunity also exists in the uranium market. A number of our operations and projects produce uranium as a by-product of the production of gold. We are already producing uranium at our Cooke Operation and, by year end, had accumulated a stockpile of around 180,000lb of uranium oxide. Uranium production is forecast to be approximately 250,000lb in 2015 as we build up our production capacity. However, instead of selling into the spot market, we are looking for higher prices – most likely by entering into long-term uranium supply contracts at an appropriate time. Despite a recovery in late 2014, we believe the uranium price is below long-term averages at the moment because of solid supply and demand fundamentals. That said, we believe the price will increase in the medium to long term.
What encourages me as Chairman is the innovative thinking at Sibanye, which has also manifested in the area of safety. Management is conscious about the use of technology to improve working conditions and provide a safer working environment, as well as the potential productivity benefits that may arise. It is really all about responsibly maximising production while promoting a safe and healthy operating environment and habits, or culture, and upskilling our employees at the same time.
At the end of 2013, we launched our CARE values – Commitment, Accountability, Respect and Enabling. CARE is more than a strategy, though. It is Sibanye’s culture and mirrors our values. CARE is part of everything we do.
The coming year is going to be challenging on several fronts. First of all, we will be engaging in wage negotiations during the year. We will strive to reach agreement with organised labour on terms deemed agreeable to both the workers and the mining industry while striving to keep people in jobs. Our country cannot afford to lose jobs in the way that we have in the past 20 years. Besides introducing productivity-linked increases, stakeholders need to consider planning beyond the traditional two-year wage cycles – this is a long-term industry with long-term implications.
Besides wages, the industry is facing greater uncertainty about the regulatory framework in 2015 with further delays in the amendments to the Minerals and Petroleum Resources Development Act. Mineral Resources Minister Ngoako Ramatlhodi has indicated that the Bill is likely to emerge as two separate pieces of legislation. He has also indicated that he is hoping that the issue will be settled by mid-year. We have made significant efforts to comply with the requirements of the Minerals and Petroleum Resources Development Act and we are comfortable with our position.
Probably the biggest single factor of concern to us at the moment is the energy situation in South Africa and its impact, particularly on deep underground mines. As we stated in 2013, we are seeking alternatives to long-term reliance on Eskom, and we hope to identify some viable and cost-effective options in the coming year.
In a challenging operating environment, the quality of the team supporting the business is crucial. We are fortunate to have the support of an exemplary Board and management, who deliver stellar results – even in a challenging industry where asset write-downs have become the global norm. I would like to congratulate Neal and his team for taking what people perceived to be defunct assets and turning them into the success Sibanye is today.
Sibanye is proof that innovative thinking, an adjusted operational focus, improved financial management and the right investment in the right places is a winning formula.
Importantly, we remain committed to South Africa. Our goal is to be the No 1 South African gold miner and the No 1 South African mining company. To this end, we are putting our money where our mouths are, and investing in sustaining our business for longer and for the benefit all of our stakeholders. We are also heavily invested in sustaining the country’s reputation as the No 1 mining destination. We firmly believe in the opportunities presented by our beautiful country, and we have confidence that we can make a real difference in South Africa.
Sibanye: We are one!
23 March 2015