Deal Wizard of South African Gold Mining Is Scaring Investors
Investors might be running out of patience with Sibanye Gold Ltd.’s colorful chief executive, Neal Froneman.
The South African miner’s stock plunged by a record 16 percent Thursday after the company warned it may consider selling assets, metals streams and — only as a last resort — new shares, if the recent strength in the rand persists.
Sibanye is under pressure to reduce debt after a rapid-fire series of deals that transformed the company from a staid and steady gold producer to a diversified precious-metals miner with both southern African and U.S. assets.
The company’s net debt is 2.6 times underlying earnings and almost as high as its current market value.
So far, investors have given Froneman, an industry veteran who earned himself the the nickname ‘Mr Fix-It’ for turnaround successes in the 1990s, the benefit of the doubt. But Thursday’s plunge suggests that might not continue forever.
“The biggest issue here is there is too much debt,” said Arnold van Graan, an analyst at Nedcor Securities. “We are seeing a lot of balance sheet risk building up if the rand-gold price stays where it is.”
South Africa’s rand has gained about 20 percent versus the dollar in the past three months, as investor optimism builds following leadership changes in the ruling party and President Cyril Ramaphosa’s appointment. Gold priced in rand has declined by about 14 percent in the same period.
Gold and platinum-group metals are sold in U.S. dollars, and while the majority of Sibanye’s gold and a substantial amount of the group’s costs are denominated in rand, its results and financial condition are affected if there is a material change in the value of the rand.
Sibanye gained 1 percent in Johannesburg Friday. The plunge in the company’s share price was overdone and it is still generating free cash flow, Morgan Stanley analysts said in a note. But the company’s debt level could present a challenge if the rand keeps strengthening.
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