JSE-listed gold producer Sibanye Gold‘s operating update for the 31 March 2013 quarter, its first since its formation as a result of Gold Fields‘ SA asset unbundling.Sibanye Gold’s CEO Neal Froneman noted that despite unfavourable trading conditions which were marred by significant and unanticipated operational disruptions, the company was able to make a profit. “Sibanye Gold was able to generate more than R1.5 billion (US$171 million) in operating profit and free cashflow of R590 million (US$66 million),” he said. He revealed that the Kloof and Driefontein operations, which will in future be separately reported on, continued to improve through the quarter, with Driefontein in particular recovering strongly from the strikes and fire at its Ya Rona shaft in 2012. “Between them, Kloof and Driefontein were responsible for 89% of the group’s operating profit, however during the quarter under review, Beatrix has been negatively affected by the underground fire at the Beatrix West Section and operational challenges at the Beatrix North Section,” he added. Froneman admitted that the quarter under review presented some significant operating challenges. The underground fire at Beatrix West Section which began on 19 February 2013 resulted in the loss of approximately 100 Kg (3 215 oz) of gold production. He said the area affected by the fire remains closed and as a result the production at this shaft is some 61 Kg (1 961 oz) of gold per month less than planned.
“The future viability of this shaft is in doubt and the company has initiated a formal section 189 process to review alternatives to closure with the regulators and organised labour,” Froneman revealed. Further, at Driefontein the power outage due to a lightning strike and subsequent transformer fire at an ESKOM substation on 13 March 2013, resulted in some 295 Kg (9 484 oz) of production losses. Nonetheless, Froneman said that despite these disruptions, and the slow start up in January post the Christmas break, total production increased by 36% from 6 831 Kg (220 000 oz) in the December 2012 quarter to 9 312 Kg (299 400 oz) in the March 2013 quarter. “Production trends over the quarter are positive, with notable improvements at Kloof and Driefontein. Beatrix remains a concern, with the operation as a whole being negatively impacted by high costs, low flexibility and lower than planned underground grades. These issues are receiving appropriate attention and it is estimated that it will take three quarters to rectify the current underperformance,” Froneman explains. Meanwhile, On 26 March 2013 the company announced the early repayment of R570 million in debt, reducing its gross debt to R4 billion and its net debt to R3.6 billion. By 30 April 2013, cash and equivalents had risen to R1.2 billion (US$130 million) and net debt had reduced further to R2.8 billion (US$304 million). Safety a priority Sibanye Gold says it believes that all accidents are preventable and aims to achieve continual safety improvement by aligning beliefs and behaviours with the company’s values, including the goal of zero harm.
“All stakeholders are included in a structured safety programme and the Department of Mineral Resources and government are continually engaged to ensure they understand and support the safety strategy. Wellbeing is achieved by ensuring workers are healthy, live decently in a safe environment and are nourished.“Key risk areas are identified and prioritised on a continuous basis and correct procedures and technical solutions are implemented. Overall compliance to standards and procedures by employees are measured through workplace audits, which form an integral part of bonus schemes for all production personnel,” Froneman asserted. He said the safety performance of the group has continued to improve and the fatal injury frequency rate for the group improved by 69% from 0.16 the previous quarter to 0.05 during the March 2013 quarter. Froneman added that the March 2013 quarter fatal injury frequency rate is in line with the 2012 United States underground mining industry fatal injury frequency rate average, which is particularly notable, considering that Sibanye Gold is a labour intensive business, operating at depths of over 3,000 metres. “Driefontein and Kloof reported zero fatalities during the March quarter, and together, achieved an outstanding two million fatality free shifts (FFS) on 2 April 2013. Kloof (previously KDC East) underground section set a new record by achieving the milestones of 4 million underground FFS and 18 months without any underground fatalities. “Sibanye Gold as a group, had also achieved 1.5 million FFS before the regrettable fatal accident at Beatrix on 4 April,” said Froneman. The lost day injury frequency rate (LDIFR) also improved, declining from 6.90 in 2012 to 6.06 in the March quarter.
Wage negotiations Sibanye Gold has revealed that the upcoming wage negotiations with organised labour are set to begin at the end of May 2013. The increased profile of the Association of Mineworkers and Construction Union (AMCU) in the last year adds a new dimension to the negotiations and at this stage, it remains uncertain how the wage negotiation process will proceed. “Management is acutely aware of the heightened risks of strike activity and as such has developed comprehensive strike plans to minimise the impact of any potential strikes,” said Froneman. Outlook The company advised that with the expected increase in organisational effectiveness, group production for the June 2013 quarter is forecast to increase by 14% to about 10 600 Kg (340 000 oz). “As a result of the increase in production and ongoing cost reduction initiatives, total cash cost and NCE are expected to be 5% lower than the March the 2013 quarter, at approximately R290 000/Kg (US$975/oz) and R360 000/Kg (US$1,220/oz) respectively. “Annual production is forecast at approximately 40 000 Kg (1.29 million oz) with average NCE for the period of approximately R380 000/Kg,” concluded Froneman.