Sibanye-Stillwater CEO Neal Froneman on Friday said there was limited downside potential for the gold price for the remainder of this year, maintaining a positive outlook for platinum group metal (PGM) prices despite headwinds for the group’s PGM operations.
Sibanye, which has been retrenching at its South Africa PGM and gold operations, saw its bullion production for the March 2024 quarter fall by 18%.
However, with gold prices currently elevated, the company’s problems were more pronounced in the PGM sector.
“The fundamental outlook for gold remains constructive with limited apparent downside for the gold price for the balance of 2024,” Froneman said.
“Our view that the fundamental outlook for PGM is positive is unchanged, with little evidence of a systemic change in the market fundamentals to justify the price collapse observed during 2023.”
During the quarter under review, Sibanye-Stillwater raised its PGM production by 3% to 414 918 ounces, despite closing non-profitable shafts.
Its South African PGM production for the quarter received a boost from the acquisition of an additional 50% of Kroondal from Anglo American Platinum.
All-in sustaining costs for Sibanye-Stillwater’s PGM operations firmed up during the quarter under review by 16% to R23 207 per ounce, mainly as a result of adjustments for legacy liabilities from Marikana.
“The above inflation increase was primarily as a result of a once-off adjustment to legacy leave liabilities at the Marikana operation (contributing R1 035 per ounce or 4.5% to all-in sustaining costs for the quarter), as well as restructuring related costs, the benefit of which will be realised in coming quarters,” said Froneman.
Cost increases for the PGM operations for the March 2024 quarter were, however, offset by product credits increasing by 30% year-on-year to R2.8 billion and royalties declining by 75%.
In spite of this, capital expenditure for the PGM operations at R1.1bn declined 3% compared with the same quarter in 2023 because of a decrease in primary off-reef development.
With PGM prices lower by over 30% for the quarter, Sibanye-Stillwater’s PGM operations took a plunge in adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) by more than 30% to R2.1bn during the quarter.
“We believe that the drivers of this decline in PGM prices are temporary, and caused by earlier supply chain disruptions,” Froneman said.
“Destocking of inventory accumulated since 2020 seems to have abated and while total vehicle production is forecast to increase, Battery electric vehicle (BEV) penetration rates have slowed with a shift to hybrid vehicles.”
Although the group’s PGM production during the quarter inched up by 3%, Sibanye-Stillwater’s gold production from its SA operations slumped by 18% to 5 117 kilograms, including production from DRDGOLD.
Exclusive of DRDGOLD output, Sibanye-Stillwater’s gold production for the March quarter was 21% lower compared to the previous contrasting period at 3 890 kilograms.
The lower production was attributed to the cessation of production from Kloof 4 shaft during 2023, despite costs still being incurred from the operation for the period under review due to the phased closure process.
A slower than planned production build-up after the December 2023 shut down compounded by seismic-related challenges at the Driefontein 4 Shaft, as well as transitioning from Carbon Leader to VCR reef at Driefontein 1 Shaft, were other factors blamed for the slowdown in gold production for the company.
Sustaining costs excluding DRDGOLD for the period amounted to $2 200 per ounce, 20% higher than the first quarter of 2023 and reflecting “the impact of 24% less gold sold inflationary cost pressures and costs incurred at the Kloof 4 shaft” as preparations for closure continued.
The company said it was aware of the negative impact of its declining adjusted EBITDA induced by lower PGM commodity prices on its covenant ratios with lenders.
Froneman said the company was continuing to focus its balance sheet on increasing liquidity through a number of non-debt instruments such as pre-pays and streams as well as through proactive engagement with lenders on temporarily raising lending covenants.
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