Sibanye Gold, the biggest producer of the precious metal from South African mines, wants to buy a gold-producing asset by the end of the year, adding to its acquisitions of platinum operations in its home country.

The asset would have to make a “material difference” to Sibanye’s current output, meaning it would have to produce at least 200,000 ounces of gold a year, Chief Executive Officer Neal Froneman said in an interview after the company’s annual general meeting Tuesday. Any acquisition would have to be generating cash to help pay dividends, he said.

Sibanye Gold CEO Neal Froneman

Sibanye Gold CEO Neal Froneman

Froneman, 56, is on the lookout for purchases after turning around three ageing gold mines in South Africa’s Witwatersrand Basin following Sibanye’s spinoff from Gold Fields in 2013. Last year, Sibanye agreed on two platinum acquisitions — Anglo American Platinum’s Rustenburg operations and Aquarius Platinum, both located northwest of Johannesburg.

“We remain optimistic about doing a gold transaction before the year-end,” Froneman said. “But gold valuations are proving to be challenging from an acquisition point of view. There’s been a substantial re-rating in the equity prices of gold companies.”

Asset Location
Gold’s 17% increase this year has fuelled a 95% surge in a gauge of 14 miners of the metal tracked by Bloomberg, making potential acquisitions more expensive. That’s especially true in South Africa, where the falling rand has lowered costs and widened profit margins. Therefore a gold-asset purchase in the country is “unlikely,” Froneman said.

“We’ve got to buy producing assets with cash flow, otherwise it doesn’t underpin the dividend thesis,” he said.

While Sibanye’s planned platinum acquisitions are only breaking even at current spot prices, the company plans to cut costs by reducing overheads at the mines, which are next to each other. That should save about R800 million ($51 million) annually within three years, Froneman said. That’s equivalent to about 80% of the company’s current dividend.