Kevin Crowley
Neal Froneman, widely known as the Mr Fixit of South African mining, has transformed a group of unwanted, underachieving gold assets into the world’s best-performing producer.
Now he wants to apply the same strategy to platinum.
The three biggest global suppliers are considering closing or selling platinum mines in South Africa after a five-month strike decimated output and left some sites potentially unsafe.
Froneman, 54, the chief executive of Sibanye Gold, said the inequality, violence, high costs and low productivity that plagued the country’s mining industry were creating an opportunity to buy platinum assets on the cheap and replicate the turnaround strategy that made his company the lowest-cost major gold producer.
“We have five targets that we’re actively working on,” Froneman said in an interview. “We’re one of the few companies that has the operating credibility and the capacity to do this.” He wouldn’t identify any of the potential acquisitions.
Froneman is looking at mines valued by their owners at about R5 billion to R10bn. He does not plan to pay that much.
“That’s what they might be valued at, but why on earth would we pay full value?”
South Africa’s longest mining strike, which ended on June 24, has prompted Anglo American Platinum (Amplats), Impala Platinum (Implats) and Lonmin to review how they operate and whether they should sell non-core assets.
Amplats, 77 percent-owned by Anglo American, might shut or offload its Rustenburg and Union mines, which produced about a third of its total platinum, chief executive Chris Griffith said in March.
Deutsche Bank said last month that the top producer might sell assets valued at $1.4bn (R15bn) next year.
Implats and Lonmin, the second and third-largest producers, respectively, said they planned to review their operations once they were up and running, which might take about six months.
The producers must rehire and retrain workers, check the physical infrastructure of the mines, remove water and shore up their structural integrity, according to Ben Davis, an analyst at Liberum Capital. Those extra costs may be too much trouble, especially since some parts of the mines are not making money.
For Froneman, this presents a chance to repeat in platinum the turnaround strategy he has already used for gold.
Sibanye was created in February last year when Gold Fields, then the fourth-biggest producer, decided to spin off three old, low-growth local mines that had been plagued by labour unrest. Gold Fields kept higher-growth assets in Peru, Ghana and Australia.
Froneman cut costs at the three mines by about 15 percent while raising output and generating cash for dividends. His strategy is based on boosting morale while cutting jobs. The company has a series of programmes aimed at improving workers’ living conditions, such as home-building, personal-debt reduction and productivity-linked bonus plans.
“Mining is a people’s game,” he said, sounding more like a personnel manager than a mining engineer. “If you don’t win the hearts and minds of your people, you will have all sorts of industrial-relations issues.”
Froneman helped reach a two-year wage agreement after a two-day strike last September and has maintained peace at his operations even after cutting 15 percent of the workforce, about 6 000 people. Using attrition, bringing previously outsourced work in-house and voluntary severance, he made only 100 forced job cuts.
By contrast, Amplats tried to eliminate 14 000 workers in a mass lay-off last year. It ended up trimming only half that after an outcry from unions and the government.
Sibanye’s shares have more than doubled this year, compared with a 17 percent gain for the Bloomberg Industry Senior Gold index, and the company has become the world’s lowest-cost major producer, according to Barclays. Gold Fields has slumped 58 percent since spinning off Sibanye 17 months ago, while the price of bullion has dropped about 20 percent.
Froneman earned the nickname Mr Fixit by turning around individual shafts at Harmony Gold in the late 1990s. He later became chief executive of Aflease Gold, and spun out SXR Uranium One in 2005 in a merger with a Canadian company. Three years later, he resigned after prices collapsed and production stalled.
He got back into gold by merging Aflease with an Australian company in 2009 to create Gold One International, which was sold to a group of Chinese investors last year. That left him available when Gold Fields decided to spin off assets, and he was named Sibanye’s chief executive in 2012.
Daniel Sacks of Investec Asset Management in Cape Town said Sibanye was “better placed than most” mining companies to deal with labour issues, and would “score points” from unions and the government for being 100 percent South Africa-focused, rather than part of a corporation listed in London.
“There could be an opportunity” to acquire undervalued assets, Sacks added.
The concern for investors is that moving into platinum may be more of a challenge than Froneman expects.
“The worry is that they’ll mess with a winning formula in a high-risk area,” said John Moorhead, a fund manager at Pictet & Cie in London who sold his Sibanye shares this year. “They’ve been successful, so why go and risk it all in another commodity?”
While Froneman has successfully handled labour issues at his gold mines, he has not faced the Association of Mineworkers and Construction Union (Amcu). The majority labour group in platinum has higher wage demands than the National Union of Mineworkers, gold’s biggest union.
The five-month platinum strike ended with producers agreeing to basic wage hikes as high as 20 percent. Amcu had sought to double salaries, redressing what it said were generations of low pay. Before the walkout, the lowest-paid workers earned R5 000 a month.
Even with those wage gains and the more-vocal platinum union, South Africa’s Mr Fixit stands a shot at pulling off another turnaround play, according to mining executives.
Froneman’s skill was “harvesting” mature mining assets with existing infrastructure, Mark Bristow, the chief executive of London-listed African bullion company Randgold Resources, said at a media lunch on July 2. “In the environment here, he could make a go of platinum.”
Sibanye Gold rose 0.97 percent to R27.11 yesterday, valuing it at R24.3bn. – Bloomberg