Updated Trading Statement and Production Report for the quarter ended 30 March 2013
WESTONARIA 8 May 2013: Sibanye Gold Limited (JSE: SGL & NYSE: SBGL) is pleased to provide a trading statement and operating update for the March 2013 quarter and a group strategic update. Full financial and operating results will be provided on a 6 monthly basis.
Further to the trading statement released on Friday, 3 May 2013, shareholders are advised that a reasonable degree of certainty exists, in the ordinary course of business, that earnings per share and headline earnings per share for the six months ended 30 June 2013 will be at least 127 cents per share , based on 566.4 million ordinary shares, being the weighted average number of ordinary shares in issue during the six months ended 30 June 2013. Based on the total number of ordinary shares in issue at the date of this report of 732.8 million, the earnings per share and headline earnings per share for the six months ended 30 June 2013 will be at least 98 cents per share. A further announcement will be released once a more definitive range can be given. The trading statement is based on a gold price of R415,000 per kilogram from 30 April 2013 until 30 June 2013.The financial information on which the trading statement has been based has not been reviewed or reported on by the Company’s auditors.
March 2013 quarter salient features
- A 121% quarter-on-quarter increase in operating profit to R1,518 million (US$171 million).
- Free cash generation of R590 million (US$66 million) during the quarter.
- A 36 per cent quarter-on-quarter gold production increase to 9,312 kilograms (299,400 ounces).
- A 22 per cent quarter-on-quarter reduction in notional cash expenditure ('NCE') to R381,347 per kilogram (US$1,334 per ounce).
- Net debt of R2.8 billion (US$304 million) as at 30 April 2013.
- A 327% increase in available cash from 31 December 2012 to R1.2 billion (US$130 million)on 30 April 2013.
- Excellent safety performance with the group now in line with United States underground fatality rates.
- Good progress made with implementation of the group business process re-engineering ('BPR') initiatives.
Statement by Neal Froneman, Chief Executive Officer of Sibanye Gold:
I am pleased to present an operating update for Sibanye Gold for the Quarter ended 31 March 2013, the first quarter these assets (Kloof, Driefontein and Beatrix) have operated independently as Sibanye Gold.
Even in a seasonally difficult quarter, which was impacted by significant, unanticipated operational disruptions, Sibanye Gold was able to generate R1,518 million (US$171 million) in operating profit and free cashflow of R590 million (US$66 million). Kloof and Driefontein, which will in future be separately reported, continued to improve through the quarter, with Driefontein in particular recovering strongly from the strikes and fire at its Ya Rona shaft in 2012. Between them, Kloof and Driefontein were responsible for 89 per cent of Group operating profit. During the quarter under review, Beatrix has been negatively affected by the underground fire at the Beatrix West Section and operational challenges at the Beatrix North Section.
The above results were achieved at an average received gold price during the quarter of R470,157 per kilogram (US$1,645 per ounce at an exchange rate of R8.89 per US dollar). Despite limited implementation during this quarter of the BPR initiatives described below, notional cash expenditure (NCE) of R381,347 per kilogram (US$1,334 per ounce), was achieved. Through the BPR the group is targeting significant cost reductions over the next two years. The BPR together with the high quality nature of the resource base should result in the group having improved flexibility.
On 26 March 2013. the Company announced the early repayment of R570 million in debt, reducing its gross debt to R4 billion and its net debt to R3.6 billion. By 30 April 2013, cash and equivalents had risen to R1.2 billion (US$130 million) and net debt had reduced further to R2.8 billion (US$304 million).
As previously announced, the 2013 business plan assumed a gold price of R400,000 per kilogram and as is evident from the March 2013 quarter, Sibanye Gold remains significantly cash flow positive even at current gold prices.
Safety a priority
The health and safety strategy is under pinned by the pillars of Culture (hearts and minds), Stakeholder alignment and engagement, Wellbeing, Engineering out the Risk and Compliance. Sibanye Gold believes that all accidents are preventable and aims to achieve continual safety improvement by aligning beliefs and behaviours with our values, including the goal of zero harm. All stakeholders are in included in a structured safety programme and the DMR and government are continually engaged to ensure they understand and support the safety strategy. Wellbeing is achieved by ensuring workers are healthy, live decently in a safe environment and are nourished. Key risk areas are identified and prioritised on a continuous basis and correct procedures and technical solutions are implemented. Overall compliance to standards and procedures by employees are measured through workplace audits, which form an integral part of bonus schemes for all production personnel.
The safety performance of the group has continued to improve and the fatal injury frequency rate for the Group improved by 69 per cent from 0.16 the previous quarter to 0.05 during the March 2013 quarter. The March 2013 quarter fatal injury frequency rate is in line with the 2012 United States underground mining industry fatal injury frequency rate average, which is particularly notable, considering that Sibanye Gold is a labour intensive business, operating at depths of over 3,000 metres.
Driefontein and Kloof reported zero fatalities during the March quarter, and together, achieved an outstanding two million fatality free shifts (FFS) on 2 April 2013. Kloof (previously KDC East) underground section set a new record by achieving the milestones of 4 million underground FFS and 18 months without any underground fatalities. Sibanye Gold as a group, had also achieved 1.5 million FFS before the regrettable fatal accident at Beatrix on 4 April.
The lost day injury frequency rate (LDIFR) also improved, declining from 6.90 in 2012 to 6.06 in the March quarter. Sibanye Gold management will maintain its focus in this area in order to reduce the LDIFR further.
Sibanye Gold will continue to pursue its goal of zero harm at its operations. That said, we believe that the health and safety gains achieved in recent years bode well for improved relationships with our regulators and significant improvements in productivity.
The quarter under review presented some significant operating challenges. The underground fire at Beatrix West Section which began on 19 February 2013 resulted in the loss of approximately 100 kilograms (3,215 ounces) of production. The area affected by the fire remains closed and as a result the production at this shaft is some 61 kilograms (1,961 ounces) of gold per month less than planned. The future viability of this shaft is in doubt and the Company has initiated a formal section 189 process to review alternatives to closure with the regulators and organized labour.
At Driefontein the power outage due to a lightning strike and subsequent transformer fire at an ESKOM substation on 13 March 2013, resulted in some 295 kilograms (9,484 ounces) of production losses.
Despite these disruptions, and the slow start up in January post the Christmas break, total production increased by 36 per cent from 6,831 kilograms (220,000 ounces) in the December 2012 quarter to 9,312 kilograms (299,400 ounces) in the March 2013 quarter. Production trends over the quarter are positive, with notable improvements at Kloof and Driefontein. Beatrix remains a concern, with the operation as a whole being negatively impacted by high costs, low flexibility and lower than planned underground grades. These issues are receiving appropriate attention and it is estimated that it will take three quarters to rectify the current underperformance.
Development rates (and hence ore reserve development costs) have risen as the company is now preparing to arrest the historical and inherited declining production profiles.
Business process re-engineering
Since the listing of Sibanye Gold, the company has made significant progress in reviewing every aspect of the business. The initial focus has been on reducing costs. Lower costs will lower the paylimits (the grade at which the ore body can be mined without profit or loss i.e. at break-even). Lower paylimits should enable the conversion of measured resources, which are pre-developed in many cases, into reserves. This should enhance operational flexibility and hence either extend the Life of Mine (LoM) or increase current production profiles. Lower paylimits could also enable the economic extraction of secondary reef packages which were to a large extent ignored in the past, when the focus was on higher grade opportunities. The potential of mining these reef packages is currently being assessed.
Costs have been reduced and organizational effectiveness improved by merging regional and corporate office structures and flattening operational management layers. Shared services divisions are now being rightsized and streamlined and the Group is in the process of rolling out the new management operating model. We believe this is the first step in reducing costs and improving the organizational effectiveness of the underground operations.
Operational focus has been improved with the appointment of senior managers for each of the operations of Kloof, Driefontein and Beatrix. The operational benefits of these initiatives should flow through during the June quarter with the cost benefits being visible from the September quarter onwards.
Sibanye Gold will communicate appropriately as the cost reductions and the productivity benefits have been fully quantified.
The upcoming wage negotiations with organised labour are set to begin at the end of May 2013. The increased profile of the Association of Mineworkers and Construction Union (AMCU) in the last year adds a new dimension to the negotiations and at this stage, it remains uncertain how the wage negotiation process will proceed. Management is acutely aware of the heightened risks of strike activity and as such has developed comprehensive strike plans to minimise the impact of any potential strikes.
With the expected increase in organizational effectiveness, group production for the June 2013 quarter is forecast to increase by 14 per cent to approximately 10,600 kilograms (340,000 ounces). As a result of the increase in production and ongoing cost reduction initiatives, total cash cost and NCE are expected to be 5 per cent lower than the March 2013 quarter, at approximately R290,000 per kilogram (US$975 per ounce) and R360,000 per kilogram (US$1,220 per ounce) respectively.
Annual production is forecast at approximately 40,000 kilograms (1.29 million ounces) with average NCE for the period of approximately R380,000 per kilogram.
8 May 2013 N. Froneman Chief Executive Officer