Dineo Faku

Sibanye Gold, the new company that was formed after Gold Fields spun off most of its South African assets, had a fairly upbeat debut on the JSE yesterday but the underlying tone of the listing signalled that investors remain cautious about the long-term outlook for mining plays.

Even though the stock traded around the middle range of analysts’ expectations, Sibanye still ended the day with the JSE’s biggest volume of trades, with 32.5 million shares changing hands at the counter. The shares closed at R13.56, giving the company a market value of R9.9 billion. The stock opened trading at R13.20.

Gold Fields shares dropped 13.52 percent to close at R91.50 in Johannesburg before gaining 0.17 percent in early New York trade to $11.90.

This was part of the rebalancing process following the unbundling of the South African assets, an analyst said.

Sibanye’s listing paves the way for shareholders in Gold Fields, the fourth-largest producer of gold, to receive one Sibanye share for each Gold Fields share on February 18.

Sibanye, which means “we are united” in Zulu, will rank behind AngloGold Ashanti to be the second-biggest South African producer of bullion. It was spun off from Gold Fields in late November last year following the labour unrest that rocked the mining sector.

Gold Fields has denied that the decision to hive off the assets was a sign of no confidence in South Africa, citing that the plan had been well thought out over years.

David Davis, a mining investment analyst at SBG Securities, said Sibanye traded within expectation of between R10 and R15. He said the first year of operation was expected to be good in terms of cash flow. However, because of the ageing nature of the mines, production would inevitably decline.

The average valuation of Sibanye was between R20bn and R24bn at a gold price of R420 000 a kilogram, Sibanye chief executive Neal Froneman said at the listing presentation at the JSE yesterday.

He said the listing could have been better and R20 a share “reflected an upside in terms of the value”.

Sibanye, which employs 45 000 people at its ageing Beatrix mine and Kloof-Driefontien Complex (KDC), said it would prioritise cutting unit costs, improving mine efficiency and increasing volumes. The company would focus on returning cash to investors and free cash flow, Froneman said. “These are high quality assets that will generate free cash.”

Froneman added that costs of operating KDC were too high at current levels, and needed to be addressed. He also said output could be beefed up.

“We have completed a benchmarking exercise and it appears that 20 percent of our costs can be reduced. We are conducting a review on corporate overheads and management structure,” he said.

For the JSE, the listing of Sibanye marks some sort of a feat. The exchange announced last week that despite the tough listing environment in South Africa and worldwide, 16 resource companies excluding reverse listings had joined the exchange in the past five years.

Before Sibanye’s listing, a total of 69 resource companies were listed on the exchange, making up 25 percent of the JSE’s market capitalisation.

“Johannesburg started as a mining town and owing to the number of resource assets in South and southern Africa, investors on this market understand investing in mining,” JSE issuer regulation division director John Burke said, adding that the exchange was pursuing resource listings.

“Where there are known assets and managements, you will find a willing buyer,” Burke added.

Froneman said diversification outside of countries such as South Africa, which was pounded by violent labour strife last year that shredded investor confidence, was not the only way to mitigate political risk.

“I think there are other ways of diversifying political risk and one is bringing in politically appropriate strategic partners like the Chinese,” he said.

As chief executive of mining junior Gold One, Froneman oversaw the company’s acquisition by a Chinese consortium that included Baiyin Non-Ferrous Group, a subsidiary of the CITIC Group, which is China’s biggest state-owned investment company, and the China-Africa Development Fund. –

With additional reporting by Reuters and Bloomberg.