In search of yield – by Allan Seccombe ( – July 14, 2014)

[] – NEAL Froneman can always be relied upon to spring a surprise. Whilst head of Uranium One in 2007, he took the company into a partnership with former Soviet assets owned by Kazakhstan. It’s what you might call ballsy.

Now, as the leader of Sibanye Gold, South Africa’s largest gold producer, he is considering a foray into platinum – a move his critics think is full of potential potholes. At Uranium One, the goal was market share; at Sibanye Gold, it’s dividends, or in investment-speak, yield.

Froneman has the backing of key shareholders for such a strategy, but it could be risky, especially if he doesn’t get exactly the right project. Yet, if the gamble pays off it will cement Sibanye as a must-have share for investors attracted to dividend flows.

“When you are a yield player, the sustainability of your yield is actually very important from a valuation point of view,” Froneman said in an interview at his offices, formerly a hospital for Libanon mine, the west Rand mine Sibanye Gold owns.

“We’ve been engaging our shareholders on a very high level on the strategy of the company. We’ve brought them into the company based on free cash and dividend yield.

They’ve made it very clear that provided as it’s along the lines we discussed earlier, they would be supportive in principle, but it will depend on the particular transaction. I think it’s going to depend on our ability to continue demonstrating we are good dividend players.

“Once you’ve established that concept, that it’s yield and free cash flow, and as long as you don’t move too far from your core business, you can embark on a strategy like this,” he said.

The Froneman skill set is in hard rock, tabular mining with Sibanye keen to show how, in this respect, gold and platinum mining are similar.

The big difference between the industries is in the processing end, but Froneman thinks that’s not really where the challenges are posed in the platinum industry. In fact, platinum’s crisis is in its labour intensivity. It’s in the underground business where Sibanye thinks it can add value.

In this respect, Froneman believes the type and pace of the firm’s recent investments has bought it ‘political support’.

Since listing in February 2013, Sibanye Gold has aquired the Cooke mines from Gold One International, a Johannesburg-listed company, rescued Burnstone from Wits Gold which is under liquidation orders, and attracted fresh, international investment.

Said Froneman: “Because of that we’ve engaged with unions and associations in a more robust way and we’re doing the right things. It’s not just about wage increases but investing money back into the business”.

So how realistic are Sibanye Gold’s ambitions to diversify? A small number of gold companies have dabbled with platinum group metals (PGMs), but few have shot the lights out.

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