PGMs Production Saves Sibanye During Strike-plagued Q1

Sibanye-Stillwater (NYSE:SBGL,JSE:SGL) released its first quarter results for 2019 on Thursday (May 9), noting that an increase in platinum-group metals (PGMs) production helped the miner weather a quarter that was plagued by a five month strike.

The strike, which ended on April 17 and was led by the Association of Mineworkers and Construction Union (AMCU), largely targeted the company’s South African gold operations, causing a decrease in production of the yellow metal.

“Q1 2019 was an important period (with Sibanye) successfully navigating complex operational and financial challenges and achieving some significant milestones,” the company said in a press release.

“The operational and financial impact of this extended strike at the South African gold operations was mitigated by another solid operational performance from the South African PGM operations, enhanced by significantly higher palladium and rhodium prices,” the miner added.

In addition to higher palladium and rhodium prices, a 17 percent depreciation in the rand to US dollar exchange rate also contributed to boosting Sibanye’s earnings and cash flow from both its South African and US PGMs operations.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) from its South African PGMs operations increased to 353 million rand, up from the 258.3 million rand this time last year.

At its US assets, the company reported an adjusted EBITDA of US$104.6 million, a 33 percent increase on the US$78.8 million incurred in Q1 2018. In rand terms, this amounted to just over 1.4 billion rand, a 56 percent increase year-on-year.

The combined Q1 adjusted EBITDA from both of the PGMs operations amounted to 1.8 billion rand, which significantly offset the more than 1.6 billion rand adjusted EBITDA loss from the South African gold operations. This resulted in total adjusted EBITDA of 176 million rand for the entire first quarter.

Overall, Sibanye produced 263,508 ounces of platinum, palladium, rhodium and gold (4E) at its South African PGMs operations and achieved an average basket price of US$1,221 per ounce of 4E. Meanwhile, its US PGMs operations had an output of 130,899 ounces of platinum and palladium, with an average price of US$1,305 per ounce of the precious metals.

For gold’s part, output amounted to 143,278 ounces. This includes gold from DRDGold (NYSE:DRD,JSE:DRD), in which Sibanye acquired a 38.05 percent stake on August 1 of last year. Production from the South African gold operations, excluding DRDGold, declined 63 percent to 106,948 ounces for Q1.

The implementation of a “no work, no pay principle” during the strike at Sibanye’s South African gold assets was the main catalyst behind the decline in production and decrease in the all-in sustaining costs, which came to US$2,225 per ounce.

Looking forward, the gold and PGMs producer stated that the strike will likely continue to effect production results in the second quarter of this year.

“Whilst the strike action and the gradual build-up post the strike will continue to negatively impact the South African gold operations during Q2 2019, unit revenues for both the gold and PGM operations are expected to exceed those in the comparative period in 2018 and further deleveraging is anticipated during the course of the year,” Sibanye explained.

The miner added that it will only provide 2019 guidance for its South African gold operations once it has “sufficient clarity” on the production buildup.

Sibanye is maintaining its PGMs guidance at between 645,000 and 675,000 ounces for its US operations, and between 1 million = and 1.1 million ounces for its operations in South Africa.

As of 12:04 p.m. EDT on Thursday, Sibanye was down 5.7 percent, trading at 1,240 rand.

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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.