Neal Froneman cuts a new deal despite his concern about SA's mining environment - Business Day

Gold, platinum, palladium and now mine dumps — serial deal maker Neal Froneman’s latest deal will shift its West Rand tailings into the specialist miner of such assets, DRDGold, in return for a 38% stake.

You have been outspokenly circumspect about the country’s mining environment, so why the new deal?

The vending-in of these assets means that the capital that is raised is not raised directly off our balance sheet or our equity lines. What really excites me is more about the potential to take another proudly-SA company and influence its growth internationally: there is a good set of skills and that’s an area where we have developed some knowledge.

But there is some nervousness that DRD might not be able to stump up the cash and will call upon Sibanye to help out. Is that a possibility?

It’s very unlikely and all I can say is that under the current investor-unfriendly environment in SA, we wouldn’t do it, we just would not do it. We need clarity on the regulatory environment before we make capital commitments like that.

In which case you wouldn’t take your stake in DRD to 50.1%?

That’s what I meant about being able to keep our options open: I have to be optimistic that things will change, and if they change, we will be one of the first companies to be supportive, to commit capital and commit further investment. But should they continue the same, there would be no point in taking our stake to 50-plus-1.

Why enter this aspect of the mining food chain at all?

It is marginal, especially when you are treating lower quality dams, but it can be very profitable and companies that have developed the skill sets to do it have certainly survived and prospered. First of all, you do it on the assumption that it’s commercial and I think DRD has had a track record of being able to do it … but I think there are some other very important factors related to being a good corporate citizen.

On the West Rand, we have a number of tailings dams that were deposited on dolomites, and under the dolomites we have significant amounts of water, and environmentally, it’s much smarter to uplift those tailings, retreat them and deposit them on new facilities off the dolomites. I also think that by combining these tailings facilities in one regional facility, you are returning land back to its original use and there are about 1,400ha that … will be available to agricultural usage.

Does this tie-up with DRD have any assumptions about the gold or uranium price?

Not at all. These projects all work at spot prices for now. The vending-in of the two existing plants is a huge step forward in terms of making this viable, generating cash, and that cash being used to finance the remaining phases. To be clear, there’s no uranium treatment at this stage — we need much higher uranium prices before that becomes viable.

Palladium (and rhodium) have been the outperformers in the PGMs market this year but that hasn’t really shifted Sibanye’s share price much. Is this because you’re not actually a great bet on the metal given the level of gearing you took on in order to buy into the metal, via Stillwater?

I think we’re one of the best ways to play the palladium price. The year has had nine months of capital raising, which always creates noise in your share price: there’s dilution, there’s shorting the shares while you’re putting these structures in place. I would suggest that once we have a clear run and the market sees the cash flow that’s generated out of our asset base, you’d see a very different share price. This is not a one-month or one-year initiative.

Is there a point at which the South African mining environment becomes so untenable that you simply cannot justify to shareholders having assets in SA? Are we headed there and if so, what will Sibanye-Stillwater do about it?

Our view is that we can still operate very successfully here but what we can’t do at the moment is invest in long-term projects. We know where we are on a day-to-day basis. But where you’re making an investment in a project that might only deliver returns in five years and requires huge amounts of capital, you can’t even model some of those decisions with the uncertainty that we have in terms of BEE ownership dilution, the cost of capital, potential ratings downgrades.

The long-term case for precious metals companies has been appalling. At what point are you better off being unlisted, or is that not possible?

I would say that our shareholders have had very good returns. In our first four years of paying dividends, we had an average dividend yield of 5%. We’ve done a rights issue so you can’t directly look at our shares. In terms of becoming private, it’s not possible. It’s an industry based on large capital investment which provides returns in the future. I do think there have been some very bad examples where there’ve been no returns. But I can only talk about our company, and we’ve provided very good shareholder returns.