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Ugly Duckling Becomes Swan as Sibanye's Value Beats Gold Fields - Bloomberg

Monday, 29 February 2016

Three years ago, Gold Fields Ltd. spun out three aging South African gold mines to focus on its suite of mechanized operations spanning three continents. The company it created, Sibanye Gold Ltd., closed at a higher market value than its parent for the first time in Johannesburg trading on Monday.

Since its unbundling in February 2013, Sibanye has beaten Gold Fields on share-price performance, production and dividends paid to shareholders. Chief Executive Officer Neal Froneman and his management team have cut expenditure, improved efficiency and benefited from a falling South African rand, which lowers costs. Gold Fields, meanwhile, has been mired in production delays at its South Deep mine, now running three years behind schedule.

“I wouldn’t have believed that Sibanye could have a bigger market cap than Gold Fields, two or three years ago,” Rene Hochreiter, a Johannesburg-based analyst at Noah Capital Markets (Pty) Ltd., said by phone. “They’ve done a great job, keeping the costs down and turning around those mines.”

Sibanye’s market value was 9.9 billion rand ($621.6 million) after its first day’s trading on Feb. 11, 2013 while Gold Fields was worth 67 billion rand. After a 150 percent surge in its shares this year, Sibanye is now valued at 52.2 billion rand, compared to Gold Fields’ 51 billion rand.

In 2012, Gold Fields Chief Executive Officer Nick Holland cited the three mines’ “inherent quality” and ability to generate cash as part of his rationale for the unbundling. 

Sibanye was spun off as three mines, Driefontein and Kloof west of Johannesburg and Beatrix near Welkom in the Free State. It has since bought the Cooke operations near Johannesburg and has agreed to buy assets from Anglo American Platinum Ltd. and Aquarius Platinum Ltd. Froneman said last week he’s targeting more purchases.

Due to the South African rand’s 44 percent decline against the dollar since Sibanye’s spin off, the gold price in rand has climbed 33 percent to 630,000 rand a kilogram. In dollars, it’s down 25 percent to $1,233.61 an ounce.

“We’ve had a bit of a wind from the back compared to them in terms of the rand gold price,” Froneman said in an interview Feb. 25.

Sibanye, with all its operations in South Africa, has benefited more than Gold Fields, whose beleaguered South Deep mine is its sole asset in the country. Nevertheless, on factors within its control Sibanye has also outperformed Gold Fields. Its production has climbed 13 percent to 1.59 million ounces in the three years through 2015, compared to a 1.8 percent decline to 2.16 million ounces at Gold Fields.

The company has returned 2.8 billion rand to shareholders over the past three years versus Gold Fields’ $140 million, or 2.2 billion rand at today’s exchange rate.

“The only thing we could sell on the unbundling of Sibanye, was that we could provide an industry leading dividend,” Froneman said. “We read that exactly right. That’s been in our success.”


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