Sibanye Gold declares a significant year-end dividend following another improved performance
Increase in earnings despite lower gold price
WESTONARIA 20 February 2014: Sibanye Gold Limited (“Sibanye Gold”) (JSE: SGL & NYSE: SBGL) is pleased to report operating and financial results for the six months ended 31 December 2013, and reviewed condensed, consolidated preliminary financial statements for the year ended 31 December 2013.
Salient features for the six months ended 31 December 2013:
- Operating profit increased by 19% to R4.0 billion (US$399 million) from R3.4 billion (US$368 million) during the six months ended June 2013.
- 18% increase in gold produced to 24 061kg (773 600oz), restoring the quarterly production rate to 2010 levels.
- All-in cost reduced by 10% from the previous six months to R336 848/kg (US$1 043/oz).
- The All-in cost margin increased to 20% from 17% during the previous six months.
- Positive safety trends maintained, with all time low fatal injury frequency rate of 0.10 per million man hours for the year.
- Net debt reduced to R499 million (US$48 million) at 31 December 2013 from R1.9 billion (US$188 million) at 30 June 2013.
- R2.0 billion (US$207 million) debt repayments during the six months ended 31 December 2013, reduced gross debt to R2.0 billion (US$193 million).
- Bridge Loan Facilities was refinanced to more favourable and less restrictive terms.
- Gold reserves increased by 46% to 19.7 Moz, with a maiden uranium reserve declared of 43.2 Mlb.
- Agreement to acquire the Cooke operations and Wits Gold reached, subject to certain conditions precedent.
The Board approved a maiden final dividend of 75 cents per share (ZAR) for the six months ended 31 December 2013, resulting in a total dividend of 112 cents per share (ZAR) in 2013. This is equivalent to a dividend yield of 5.5% at Sibanye Gold’s closing share price of R20.40 on 18 February 2014 and 9.1% at the closing share price on 31 December 2013.
Statement by Neal Froneman, Chief Executive Officer of Sibanye Gold
“Sibanye Gold’s operating performance for the second half of the year ended 31 December 2013 was significantly better than that of the first half, with production increasing by 18% and All-in cost 10% lower. Importantly, production for the December 2013 quarter was maintained at 12 000kg (385 800oz), which is similar to that reported for the September 2013 quarter and 2% above our forecast of 11 750kg (378 000oz). Recent production levels represent the highest combined production from our Beatrix, Driefontein and Kloof operations since the December 2010 quarter and, despite flat production quarter-on quarter, costs continued to decline. Operating cost of R842/ton (US$83/ton) and All-in cost of R333 833/kg (US$1 027/oz) were both 2% lower than in the September 2013 quarter.
Our focus on establishing a production-friendly environment, coupled with a dedicated health and safety strategy and initiatives to engineer out risk, continue to deliver safety improvement as we strive towards our goal of Zero Harm. The fatal injury frequency rate at the end of the year was 0.10 per million man hours worked, which is a 41% improvement over the previous year and the lowest ever rate achieved over a year at these deep level gold mines. The lost day injury frequency rate was 6.13 per million man hours worked, which represents an 11% year-on-year improvement. Despite the depth and labour intensive nature of our operations, our safety indicators are starting to approach global mining safety benchmarks.
After a thorough operational review in the first half of 2013, implementation of Sibanye Gold’s new operating strategy and organisational structures has delivered significant production and cost benefits. Organisational effectiveness in 2013 improved through the implementation of our new operating model, which includes:
- Re-organising and rolling out flatter, team based management structures, which position experienced mining management closer to the face and tightened the focus on core mining at the operations;
- Implementing needs focused management information systems supported by detailed monthly business unit performance reviews;
- Revising the ore reserve management principles and practices and reassessing and introducing new operating plans applicable to individual business units;
- Focusing on the quality of mining – improving the Mine Call Factor by focusing on the areas that result in gold losses, and greater attention to stoping width control; and
- Eliminating scattered regional support functions by centralising and rightsizing Group support services into customer focused, cost driven centralised service departments.
As a result of implementing our operating model, gold production for the six months ended 31 December 2013 increased to 24 061kg (773 600oz), which is 3 648kg (117 300oz) above production during the six months ended 30 June 2013. Total cash cost of R259 919/kg (US$804/oz) and All-in cost of R336 848/kg (US$1 043/oz) were both 10% lower than during the first six months, largely as a result of the increase in gold production. Underground cost per ton milled declined by 12% to R1 527/ton (US$152/ton) from R1 737/ton (US$190/ton) in the first half of the year, driven by a 19% increase in underground volumes milled, and strict controls on underground operating costs, which increased by only 5% to R5 639 million (US$560 million). This was despite the increase in milled throughput, annual wage increases and elevated winter electricity tariffs in the second half of the year.
Despite receiving a 7% lower average Rand gold price of R420 423/kg (US$1 301/oz) in the six months ended 31 December 2013, Sibanye Gold generated an operating profit of R4.0 billion (US$399 million) during the period, which is 19% higher than in the previous six months. Net cash generated for the period, before net loan repayments and dividends, was R1.7 billion (US$170 million).
Sibanye Gold is now comfortably positioned in the lowest quartile of the global All-in cost curve and is capable of generating solid cash flow under lower gold prices than currently prevail. The significant decrease in operating unit costs has reduced operational paylimits (or the grade at which an ore reserve can be mined without generating profit or loss), enabling conversion of resource to reserve, improving operational flexibility and positioning Sibanye Gold to extend its operating life.
Revised Life of Mine planning has resulted in an update of Sibanye Gold’s Mineral Resources and Reserves for 2014. Total gold Reserves have increased by 46% to 19.7 Moz (including 1.5 Moz of Reserves depleted through mining during 2013) at 31 December 2013, from 13.5 Moz in 2013, due to conversion of both underground and surface Resources into Reserve. Including the effects of depletion through mining, underground gold Reserves increased by 2.4 Moz and surface gold Reserves, mainly in tailings storage facilities following the completion of a pre-feasibility study, increased by 4.0 Moz. Total gold Resources reduced by 9.3 Moz to 65.0 Moz, primarily due to re-evaluation of the paylimit on which indicated Middelvlei Reef Resources at Kloof Main and 8 Shafts are based.
A maiden uranium Resource comprising 419 Mtons containing 68.8 Mlbs uranium has been determined based on uranium contained in the tailings storage facilities at Driefontein and Kloof and the underground Beisa Section orebody at Beatrix 4 Shaft. The surface uranium resources are included in reserves comprising 406 Mtons containing 43.2 Mlbs of uranium.
Operating and financial comparisons with the year ended 31 December 2012 are complicated by the significant operational disruptions experienced in 2012 and various accounting adjustments applied in both years. Gold production for 2013 was 17% higher than that achieved in 2012 and the All-in cost was 7% lower, both as a result of the severe strikes in 2012 and the re-focus on mining and cost saving initiatives after unbundling early in 2013. Operating profit increased to R7.4 billion (US$767 million) from R5.7 billion (US$700 million) due to the increased revenue, partly offset by production and inflation related cost increases. The gold price was unchanged year-on-year and averaged R434 663/kg during 2013. Despite the increase in operating profit, once-off items including a R821 million (US$90 million) impairment in the carrying value of the Beatrix West section, R439 million (US$46 million) restructuring costs and increased royalties and taxation charges, resulting from the improvement in profitability, resulted in basic earnings halving to R1.7 billion (US$176 million). In 2012 we accounted for a deferred tax credit due to amendments to the tax rate of R1.0 billion (US$123 million). This compares with a net deferred tax credit in 2013 of R214 million (US$22 million) arising from an adjustment to the long term deferred tax rate.
Net cash generated for the year ended 31 December 2013, before net loan repayments and dividends, was R3.6 billion (US$375 million), which is equivalent to approximately 40% of Sibanye Gold’s market capitalisation as at 31 December 2013. Debt repayments during the year totaled R2.2 billion (US$231 million), reducing gross debt to R2.0 billion (US$193 million) and net debt to R499 million (US$48 million) at year end. The Group paid a maiden R272 million (US$27 million) interim dividend in October 2013.
Sibanye Gold’s Bridge Loan Facilities was restructured on 13 December 2013. The restructured R4.5 billion Facility comprises a R2.5 billion revolving credit facility and a R2.0 billion term loan facility, both of which mature in three years’ time. This is a strong vote of confidence by the lenders in Sibanye Gold’s cash generative ability.
We expect the cost benefits from the restructuring completed late in 2013 to deliver additional value in 2014. As we continue to review every aspect of the business, we expect to secure further, but more limited, reductions in overhead costs. In 2014 we will place greater emphasis on increasing output and improving productivity, with potential volume and efficiency gains continuing to drive down operating costs. The quantum and timescale of these benefits are not included in our forecasts. Key areas with significant potential for further cost and productivity improvements, include:
- Further reorganisation of Group support services;
- Cost reductions from detailed analysis of the supply chain - both up-stream and down-stream;
- Alternate shift cycles, stoping crew optimisation and a bonus review to improve effectiveness; and
- Further conversion of Resources to Reserves through:
- Continued assessment of the potential to safely mine high-grade white areas (remnant resources) and support pillars, which will be added to the Reserves on an annual basis; and
- Assessment of the economic viability of vast secondary reef resources.
In line with our strategy of extending the lives of our operations and assets, Sibanye Gold announced three transactions during the six months ended 31 December 2013.
- In August 2013, agreement was reached with Gold One International Limited to acquire its Cooke underground and surface assets for such number of shares that represent 17% of Sibanye Gold’s issued share capital, on a fully diluted basis on the closing of the transaction. This transaction is expected to be earnings and cash flow accretive. Importantly, the transaction secures the Cooke surface tailings Resources and the Cooke 4 gold and uranium plant, which are critical to unlocking the significant gold and uranium Resources contained in the surface tailings storage facilities across our West Rand operations.
- The second transaction signals greater co-operation between the gold producers in South Africa in order to unlock value in the industry. Sibanye Gold agreed to exchange two mining right portions at its Beatrix operation, which are not included in its current life of mine, for two mining right portions at Harmony’s Joel operation. These acquired mining rights are more readily accessible from both the Beatrix North and South sections. Two further mining right portions have been exchanged with Harmony for a royalty of 3% of net revenue derived from mining these portions.
- Finally, in December 2013, Sibanye Gold agreed to acquire the entire issued ordinary share capital of Witwatersrand Consolidated Gold Resources Limited (“Wits Gold”) for a cash consideration of approximately R410 million, thereby securing substantial gold and uranium resources. The majority of these resources are adjacent to our Beatrix operation and, through synergy with existing operations and infrastructure, will secure the long term future of Beatrix. Wits Gold also has an option to acquire the Burnstone mine from the liquidators of Great Basin Gold and a decision to exercise this option will be made in due course.
Sibanye Gold expects to conclude all of these transactions early in 2014. Details of these transactions are available on the Sibanye Gold website – www.sibanyegold.co.za. Based on the solid progress towards restoring operational credibility in 2013 at our existing operations and the implementation of an effective operating strategy, we are well positioned to seamlessly integrate these acquisitions into Sibanye Gold and deliver on synergies with our current operations.
For the year ending December 2014, gold production in the normal course of business from the Kloof, Driefontein and Beatrix Operations is forecast at 44 000kg (1.4 million oz). Total cash cost is forecast to be approximately R270 000/kg (US$800/oz) and All-in cost approximately R360 000/kg (US$1 070/oz), assuming an average exchange rate of R10.50 to the US Dollar during the year. Capital expenditure for the year has been budgeted at approximately R3.1 billion (US$295 million).
Considering the improving operational performance, robust cash generation and, following the lifting of restrictions on the payment of dividends arising from the debt restructuring, the Board has declared a final dividend of 75 cents per share for the six month period ended 31 December 2013. The full year dividend of 112 cents per share (R823 million), or 35% of 2013 normalised earnings, is at the upper end of the range defined by Sibanye Gold’s dividend policy and reflects the Board’s confidence in the outlook for the Group in 2014.
In conclusion, during its first year as an independently listed gold producer, Sibanye Gold has successfully delivered an operational turnaround. The operational base has been reset, securing a stronger and longer future at our Operations and we have entered into transactions which are value accretive and provide significant growth potential.
I am confident that we have now sustainably arrested the declining production and rising cost trends that have characterized these operations for many years, and that the higher production levels can be maintained. The reset cost base meaningfully extends the operating lives of our mines and positions the company for value accretive growth. Sibanye Gold will remain true to its dividend yield policy, continuing with our strategy to deliver superior value for all stakeholders.”
20 February 2014 N. Froneman Chief Executive Officer