Sibanye braces for fall in production as it counts the cost of lockdown

Sibanye-Stillwater, the world’s biggest platinum producer,
said on Wednesday it had begun phasing in mining activity following the
announcement of adjusted lockdown measures by government.

However, it warned that the shutdown period could negatively
impact the production outlook for 2020, as well as its ability to comply with
debt covenants and meet liquidity requirements.

In an annual report released on Wednesday, Sibanye listed a
number of uncertainties associated with the coronavirus pandemic that could have
an impact on the company going forward. These include turmoil in the global
economy and the possible adverse impact in the short- to medium term on the
demand for platinum group medals and gold, commodity prices and rand-dollar
exchange rates.

The nationwide lockdown, which has hit miners hard, is
expected to have a severe impact on South Africa’s production of platinum group
metals overall – and SA produces some 70{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} of the world’s platinum supply. But
according to Sibanye, it’s not only SA it’s concerned about.

Other challenges include the possibility of potential
lockdown at its US operations “overlapping significantly” with the
lockdown at the South African operations, and delayed return to normal
production by suppliers and customers and the economies in which they operate
as well as the health of employees after the extended lockdown.

The combination of the Covid-19 impact and other factors may
require the company to institute damage control measures, namely to adjust mine
plans, reduce capital expenditure and/ or sell assets, it said. Another
possibility could be, with lender approval, to request covenant amendments or
restructure facilities, the company said.

Sibanye has in recent years racked up debt to fund its
acquisition trail. Its gross debt was approximately R26.6 billion in 2019,
compared with approximately R23.8 billion in 2018, according to the report.

“While each of the scenarios result in a net utilisation
of available liquidity, none of the scenarios result in an overall depletion of
available liquidity,” the report read.

Analysts previously forecast that mining companies would be
severely impacted by the five-week lockdown, imposed by government at the end
of March to limit the spread of the coronavirus.

Companies were initially instructed to put operations under
care and maintenance, with essential operations such as smelters allowed to
operate at 50{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} capacity.

The Minerals Council of South Africa, which represents the
majority of the industry, said while it supports government’s 21-day lockdown, the
impact on the industry would be “significant”.

Sibanye, for its part, said it had begun to institute measures
to prepare for workers’ return to production following the announcement that
operations could be phased in.

The company said initial readiness of the mines included
ensuring appropriate ventilation, starting of belts, flushing of water pipes
and training of employees to ensure a safe return to production. 

Safety as mines resume activity has been a sticking point
among some mine workers and their representatives, who have voiced concerns
that mines are high-risk environments for the spread of the coronavirus as it
is not always possible for employees to work at a safe distance from each other
or in well-ventilated, sanitary areas.

Companies including
Impala Platinum and AngloGold Ashanti have said they are putting processes in
place to increase worker safety, Fin24 previously reported. But not all
employees are convinced this will be enough to mitigate the risk.

Since its formation 2012, Sibanye has grown from a small
gold miner to a global giant through a series of acquisitions in the sector. In
2017, it diversified into platinum group metals (PMG) following a merger with
US producer, Stillwater, to become Sibanye-Stillwater.  

Sibanye shares closed 9.5{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} up on the JSE at R32.30.