The opportunity at the bottom of the cycle/deriving value ... · definitions of the SAMREC Code...
Transcript of The opportunity at the bottom of the cycle/deriving value ... · definitions of the SAMREC Code...
The opportunity at the bottom of the
cycle/deriving value through
consolidation
2016 Junior IndabaJune 2016
DisclaimerCertain statements included in this presentation, as well as oral statements that may be made by Sibanye Gold, or by officers, directors or employees acting on their behalf related to the subject matter hereof, constitute or are based on forward-looking statements. Forward-looking statements are preceded by, followed by or include the words “may”, “will”, “should”, “expect”, “envisage”, “intend”, “plan”, “project”, “estimate”, “anticipate”, “believe”, “hope”, “can”, “is designed to” or similar phrases. These forward looking statements involve a number of known and unknown risks, uncertainties and other factors, many of which are difficult to predict and generally beyond the control of Sibanye Gold, that could cause Sibanye Gold‘s actual results and outcomes to be materially different from historical results or from any future results expressed or implied by such forward-looking statements. Such risks, uncertainties and other factors include, among others, Sibanye Gold’s operations, Sibanye Gold’s ability to implement its strategy and any changes thereto, Sibanye Gold’s future financial position and plans, strategies, objectives, capital expenditures, projected costs and anticipated cost savings and financing plans, as well as projected level of gold price and other risks. Sibanye Gold undertakes no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this presentation or to reflect any change in Sibanye Gold’s expectations with regard thereto.
In accordance with the requirements imposed by the JSE, Sibanye Gold reports its reserves using the terms and definitions of the SAMREC Code (2007 edition). There are differences between the SAMREC Code and the Security and Exchange Commission’s Industry Guide 7. Mineral or ore reserves, as defined under the SAMREC Code, are divided into categories of proved and probable reserves and are expressed in terms of tonnes to be processed at mill feed head grades, allowing for estimated mining dilution, recovery and other factors.The lead Competent Person designated in terms of SAMREC, who take responsibility for the consolidation and reporting of Sibanye Gold’s Mineral Resources and Mineral Reserves and of the overall regulatory compliance of these figures is Mr. Gerhard Janse van Vuuren, who gave his consent for the disclosure of the C2015 Mineral Resource and Mineral Reserve Statement. Mr Janse van Vuuren [BTech (MRM), GDE (Mining Eng.), MBA and MSCoC] is registered with Plato (PMS No 243) and has 27 years’ experience relative to the type and style of mineral deposit under consideration. He is the current Vice President: Mine Planning and Mineral Resource Management and is a full time employee of Sibanye Gold. Mr. van Vuuren consents to the inclusion of all information in this release relating to mineral resources and mineral reserves in the form in which it appears. The respective business unit based Mineral Resource Managers, relevant project managers and the respective Mineral Resource Management discipline heads have been designated as the Competent Persons in terms of SAMREC and take responsibility for the reporting of Mineral Resources and Mineral Reserves for their respective area(s) of responsibility. Additional information regarding these personnel, as well as the teams involved with the compilation of the Mineral Resource and Mineral Reserve declaration is incorporated in the Mineral Resources and Mineral Reserves Supplement that will be published in conjunction with the 2014 Sibanye Gold Integrated Report. 2
Consolidation benefits
• Planning and ore body extraction optimised by breaking down farm boundaries
• Improved capacity utilisation and rationalisation of infrastructure• Remove duplicated/unnecessary overhead structures and costs• Rationalise replicated support services • Optimise capital allocation• Flexibility to close loss making production• Enhance financial capacity
– Access to capital markets improved– Cost of capital reduced
Consolidation is logical and necessary 3
A successful consolidation strategy
• Appropriate entry point in the economic cycle
• A solid corporate foundation
• Commodities with potential
• Low risk targets with significant upside
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12. Rising Real Estate
Prices 1. Rising Interest Rates
2. Falling Share Prices
3. Falling Commodity
Prices
4. Falling Overseas Reserves
5. Tighter Money
6. Falling Real Estate
Value
7. Falling Interest Rates
8. Rising Share Price
9. Rising Commodity
Prices
10. Rising Overseas Reserves
11. Easier Money
BOOM
SLUMP
CORPORATE FAILURE
SLOW DOWN
GLOOMRECOVERY BEGINS
HESITANT UNEVEN
RECOVERY
GENERAL RECOVERY
STRONG RECOVERY
Source:FinancialPlanningmalaysia.com
Originally compiled by “The Evening Standard”, London from a study of trade cycles over 150 years
ECONOMIC CLOCK
The economic cycle
A distressed business sector creates opportunities
Disposal and consolidation drivers• Commodity prices remain depressed
– Companies invested in growth through the upcycle in anticipation of continued growth in demand
– Collapse in global economy resulted in demand slowing - resultant supply overhang caused prices to collapse further
• Corporate revenues affected by low prices – margins and cash flows disappear
• Companies in financial distress - growth in upcycle funded with debt • Typical response – cut costs, reduced or defer capital and rationalise
portfolios (sale of non-core assets) to reduce debt
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100
120
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200
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240
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Economist all commodity index (rebased to 100)
Opportunity to buy assets at attractive prices
• Uncertain policy and regulatory environment
• Difficult industrial relations climate
• Inconsistent and increasingly expensive power and water
• Socio-economic pressures
5Opportunity to buy assets at attractive prices
Additional disposal and consolidation drivers
A successful consolidation strategy
• Appropriate entry point in the economic cycle
• A solid corporate foundation
• Commodities with potential
• Low risk targets with significant upside
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What we inherited on unbundling
• A strong safety culture with a good safety record• Large, high grade resources but relatively small reserves• Well maintained assets • A declining production profile• Unacceptably high costs• Sub-optimal operational effectiveness:
• Inefficient organisational structures • A service function too large for sustainable operational requirements
• Opportunity to extend the operating life and enhance cashflow by:• Reducing costs• Increasing operational efficiency and productivity
8The “Good” the “Bad” and the “Ugly” 8
Enhanced competitive positioning
Favourable cost curve position and relatively little debt 9
Source: Qinisele Resources; Company guidance (Sibanye assuming R15.70/US$ YTD average for 2016)
A strong currency
Convincing share price appreciation 11
Source: Bloomberg/iNet 12 April 2016
-29
189
-43-49
-100
-50
0
50
100
150
200
2013
2014
2015
2016
%
Relative share price performance
Barrick Newmont Sibanye ADR Gold Fields ADR AngloGold ADR Harmony ADR HUI Index
-57
Shares in IssueADRs in issue
916 654 291237 696 734
Market Cap R53 billion (US$3.6 billion)
Listings • JSE Limited share code: SGL • New York Stock Exchange ADR
programme share code: SBGL
Debt* R2.0 billion (US$123 million) of R4.5 billion term and revolving facility
A solid balance sheetCorporate overview
Major Sibanye Gold shareholders *
Gold One Limited 20.24%
Public Investment Corporation 10.02%
Van Eck Associates Corporation 6.62%
Contact details
Libanon Business Park1 Hospital Road (off Cedar Avenue)Libanon, Westonaria, 1779South Africa
Neal FronemanCEO
Tel: +27 11 278 9600e-mail: [email protected]
James WellstedInvestor Relations
Tel: +27 11 278 9656e-mail: [email protected]
* Source: J.P.Morgan Cazenove, February 2016* At 25 February 2016, excludes Burnstone debt
20%
31%
36%
2%1%1%
9%
China
South Africa
USA
United Kingdom
Ireland
Luxembourge
Others
* Source: J.P.Morgan Cazenove, February 2016
Shareholder geographic distribution*
A substantial company with a strong balance sheet 12
A successful consolidation strategy
• Appropriate entry point in the economic cycle
• A solid corporate foundation
• Commodities with potential
• Low risk targets with significant upside
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SA gold industry - a history of consolidation
• Mature industry driven to consolidation by increasing costs and operational complexity
• Significant decline in production and employment, with increasing costs
• 69 listed gold companies in 1990, six in 2016
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Source: SA Chamber of Mines
Consolidation opportunities in gold further reduced by recent gold price increase
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1. Northam
2. Anglo America Platinum
3. Sedibelo Platinum
4. Platinum Group Metals
5. Wesizwe Platinum
6. Royal Bafokeng Platinum
7. Impala Platinum
8. Lonmin
9. Eastern Platinum
10. Glencore Xstrata
Sibanye Platinum
Sibanye Platinum (formerly Aquarius)
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Opportunity to leverage Sibanye’s successful operating model
Western Limb PGM Operations• Operating environment is
similar to RSA gold:• medium depth, tabular,
hard rock mining• labour intensive, mainly
utilising conventional mining methods
• Fragmented ownership
• Low PGM prices, escalating costs (labour, utilities) have put balance sheets under strain
• Long term PGM supply and demand fundamentals remain robust
Sibanye PGM rationale
PGM market fundamentals remain robust
Despite sustained depressed spot prices, we believe the PGM fundamentals remain robust• Substantial industry wide capex and production cuts already announced in response to
unsustainable rand PGM basket price• SA supply unlikely to return to pre-crisis levels and limited YoY global producer supply
growth anticipated from CY16E onwards• Historically significant secondary supply growth being eroded by prevailing US$ prices• Despite ongoing auto market evolution and diesel market concerns, auto volumes
continue to surprise on the upside and absolute diesel volumes are expected toincrease
PGM pricing headwinds may however persist over the near term• The impact of limited trading liquidity, excess above ground PGM stocks and ETF
volatility on price remain difficult to quantify. Deficit drawdowns and working capitalcycle underpin should see an accelerated normalisation of this stock
Source: Johnson Matthey, WPIC, company forecasts
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02004006008001 0001 2001 4001 6001 8002 000
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500
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1992A 1997A 2002A 2007A 2012A 2017ESurplus / (Deficit) Ex-ETF market balancePt Price (US $ / oz) (rhs)
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1992A 1997A 2002A 2007A 2012A 2017ESurplus / Deficit (koz) Ex-ETF market balancePall Price (US $ / oz) (rhs) R² = 0,5417 R² = 0,9129
0100200300400500600700800900
1 000
2007A 2009A 2011A 2013A 2015E 2017E 2019E
Platinum PalladiumLinear (Platinum) Linear (Palladium)
Solid supply and demand fundamentals
The bitter medicine required
• Production discipline – closure of loss making and break even production
• Improved capital allocation and co-operation• More rigid cost control especially around above inflation wage
increases• Ownership consolidation – similar to the last 20 years in the RSA Gold
industry
Source: SA Chamber of Mines
17New strategies required to manage labour, communities and regulators
Comparative SA gold and PGM company ratings
SA Gold shares no longer attract a premium ratingSource: Bloomberg 5 May 2016
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A successful consolidation strategy
• Appropriate entry point in the economic cycle
• A solid corporate foundation
• Commodities with potential
• Low risk targets with significant upside
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Rustenburg and Aquarius acqusition
20Low acquisition costs result in significant flexibilitySource: HSBC research
• Rustenburg transaction structured to minimise risk:• Relatively low capital outlay upfront • Downside protected for first 3 years• Future payments ring-fenced to assets results in upside and downside risk sharing
• Aquarius transaction more commercial, but at favourable point in cycle• Realisation of operational and cost synergies to unlock future value
Shared services and central cost savings− Corporate overheads reduced
− Regional, central and shared services
− Bathopele/Kroondal shared services optimised
− Rustenburg and Kroondal training
Unlocking R800 million per annum in synergies
Operating synergies− Removal of mine boundaries results in
optimised mine plans and underground infrastructure
− Optimising plant utilisation and surface ore flow
Turk #(undeveloped)
School of Mines
Rustenburg OperationsCare & Maintenance
Direct cost savings at the operations− Best practice operational
benchmarking− Economies of scale benefits
Driving value creation through realisation of regional and operating synergies 21
Conclusion
• Advantageous stage in the commodity and economic cycle creates opportunities
• Sibanye uniquely positioned to benefit from on-going rationalisation in the broader global mining industry due to robust balance sheet and strong, consistent cash flows
• Growth and consolidation in the platinum industry is a logical extension of our value strategy
A secure and prosperous future 22
Questions