South Africa’s Biggest Gold Miner Halts Dividends as Debt Builds

JOHANNESBURG (Capital Markets in Africa) – Sibanye Gold Ltd. canceled its dividend after debt ballooned while it swung to a loss, marking a series of firsts for the South African producer that’s been one of the world’s top performers in its four-year history.

Sibanye will focus on cutting borrowings after its $2.2 billion purchase of U.S. platinum-group metals producer Stillwater Mining Co. earlier this year, making the payment of a cash dividend “inappropriate,” the Johannesburg-based company said in a statement Wednesday.

The miner, the biggest producer of South African gold, has also contended with a stronger rand this year, which eats into earnings, and charges related to plans to close some unprofitable gold mines in South Africa.

Sibanye has been pursuing growth and adding assets while rivals focus on debt reduction and cutting costs as gold declined in four of the past five years. Paying a dividend has been a core part of Sibanye’s strategy since it was spun off from Gold Fields Ltd. in 2013 to hold a group of South African mines that, while high-cost and aging, are proven cash generators.

The company reported a first-half net loss of $363.8 million, which included a large impairment charge on unprofitable mines it plans to close and a provision for settling a lung-disease class-action lawsuit.

Sibanye, which is the second-best performing member of a Bloomberg Intelligence index of global producers over the past four years, still expects to generate positive cash flow in 2017, it said Wednesday. In the absence of a dividend, it plans to give investors two new shares for every 100 held.

Sibanye dropped as much as 7.6 percent and traded 5.3 percent lower at 9:48 a.m. in Johannesburg. The company has gained 24 percent this year as gold strengthened, and has more than tripled in the past four years.

With production at its core South African mines expected to fall by half by 2030 as reserves are depleted, Sibanye Chief Executive Officer Neal Froneman has led a move into platinum, first by buying mines from Anglo American Platinum Ltd. in South Africa, and later the acquisition of Stillwater in the U.S.

Most of Sibanye’s debt has been incurred in these acquisitions. The company had net borrowings of $1.7 billion at June 30, up from almost nothing four years ago. Net debt is currently 2.6 times earnings and will increase towards 3 times next year, Sibanye said. Its long-term goal is to reduce net debt to one times earnings.

Source: Bloomberg Business News