In response to a question posed during the PGMs Industry Day on September 9, he stated: “We’re not trying to emulate a Rio Tinto or BHP, they are very broadly diversified, and they have their own strategies. I think initially for us there has to be links to the commodities that we are diversifying into.”
“I think the battery metals are complementary to PGMs, not from a product point of view but from an underpinning of the market. We already are in the battery electric vehicle market. There is [also] an element of wanting to become a Fourth or Fifth Industrial Revolution company by being associated with those metals, and nickel and copper are inherently part of that group,” he added.
Froneman also noted that he believes that the battery metals space offers “the most value accretion at the moment, partly [owing] to entries of other companies into the wrong forms, but also because it’s been hammered by the Covid-19 pandemic”.
He added that Sibanye was constantly scouting the market, irrespective of commodity prices, looking for value opportunities. He stated that the battery metals space offered the “best opportunities, for us, for now.”
However, he stressed that a move into that segment was not imminent, as the company, and the globe, was still addressing challenges related to the pandemic. He suggested that there might be some development in that regard in six months’ time.
While he did not outright state that this possible expansion would take place in North America, he mentioned that the group was focused on the jurisdiction because the group was still looking to improve its risk profile and it had already established a base on the continent.
Further, Froneman expressed caution at possibly investing in a greenfield project, because the risks related to greenfield developments and project startups were significant.
He suggested that the group would focus on “buying something that’s built,” most likely acquiring projects that have “gone wrong” or run out of capital.
Froneman’s presentation focused on the benefits of geological and commodity diversification.
He noted that when the company was established in 2013, after being unbundled by Gold Fields, it saw an opportunity to differentiate itself from the other JSE-listed gold companies by diversifying the company with respect to commodity and geography.
Froneman explained that, at the time, opportunities for growth through mergers and acquisitions in the local gold sector were limited and owing to the relative discount value in comparison to international gold stocks, “accretive expansion in the international gold sector was not a viable option as access to competitive debt financing was limited”.
As such “the most natural expansion” was into the PGMs sector, because its operational similarity to gold mining meant that Sibanye could leverage its operating model and competencies, while applying lessons learnt from gold mining.
He explained that the PGMs sector was fragmented at the time, owing to the strike action of 2012 and 2014, adding that several assets were in severe financial distress. “With the sector temporarily out of favour, certain assets offered clear value when considering the long-term positive PGM dynamics.”
Froneman commented that entry at a low point of the price cycle, underpinned by “thorough market analysis” had been justified with significant value realised once prices rallied.
In terms of geographical diversification, he noted that the acquisition of Stillwater, which was concluded in April 2017, gave the group access to a Tier 1, long-life palladium-rich asset located in Montana in the US, which has a stable operating and supportive regulatory environment.
The group also acquired SFA Oxford for its “specialised insight into future automotive and technology trends”. Froneman stated that SFA Oxford’s insight would inform further diversification efforts.
In terms of the benefits of diversification, he noted that geographically, the advantage was “clearly demonstrated” during South Africa’s national lockdown, as the US operation’s production continued uninterrupted. Further, during local wage strikes in 2018, production from the US operations allowed the group to “stand up to unreasonable stakeholder demands”, without compromising on the sustainability of the business.
The operations are also increasingly resilient to exchange rate fluctuations.
Meanwhile, Froneman noted that integration of diverse operations meant that there were substantial growth opportunities through access to best practice and global expertise.
He stressed that the US operation was also deriving benefits from the larger group, including greater financing capacity and reduced risk relative to single asset and single commodity exposure.
It also has access to underground deep-level mining best practice, including in support systems, rock mass management and ventilation.
Froneman dedicated his PGMs Industry Day address to Sibanye executive VP Chris Bateman who passed unexpectedly over the weekend.