Business Context and Reporting Period
This Form 6-K filing contains a Pre-Listing Statement for Sibanye Gold Limited (formerly GFI Mining South Africa Proprietary Limited), a South African gold mining company. The filing, dated January 10, 2013, details the proposed "Unbundling" of Sibanye Gold from its parent company, Gold Fields Limited. The transaction involves a pro-rata distribution of Sibanye Gold shares to Gold Fields shareholders, resulting in Sibanye Gold becoming an independent, publicly traded entity listed on the Johannesburg Stock Exchange (JSE) and the New York Stock Exchange (NYSE) via American Depositary Receipts (ADRs). The listing is scheduled to commence on February 11, 2013.
Sibanye Gold operates two primary deep-level underground gold mining complexes in South Africa: the Kloof-Driefontein Complex (KDC) and the Beatrix mine. The company holds significant gold reserves, estimated at 21.5 million ounces as of December 31, 2011.
Key Financial Metrics
The following financial data is presented in South African Rand (ZAR) millions, unless otherwise noted, based on the six-month period ended June 30, 2012, and the fiscal year ended December 31, 2011.
| Metric | Six Months Ended June 30, 2012 | Year Ended Dec 31, 2011 |
|---|---|---|
| Revenue | R 8,992.0 | R 16,613.1 |
| Profit for the Period | R 2,524.6 | R 2,563.2 |
| Cash Profit (Revenue less Total Cash Costs) | R 3,580.4 | R 6,701.9 |
| Total Cash Costs | R 5,411.6 | R 9,911.2 |
| Notional Cash Expenditure (NCE) | R 6,831.0 | R 12,822.6 |
| Gold Production | 21,402 kg (0.69M oz) | 45,005 kg (1.45M oz) |
| Capital Expenditure | R 1,494.4 | R 2,922.6 |
| Net Debt (Post-Unbundling Allocation) | R 4.0 billion (Retained by Sibanye) | N/A |
| Available Credit Facilities | R 7.7 billion (Unutilised) | N/A |
Note: The filing states that Sibanye Gold's total liabilities exceeded its assets by R 10,049.4 million as of June 30, 2012, primarily due to inter-company loans from Gold Fields. These loans are expected to be settled via share subscription prior to the unbundling.
Material Changes vs. Prior Period
- Production Decline: Gold production decreased by 13% in the fiscal year ended December 2011 compared to the prior year. This was attributed to wage-related industrial action, safety-related stoppages, and declining mining grades at both KDC and Beatrix operations.
- Revenue Increase: Despite lower production volumes, revenue increased by 21% in fiscal 2011 compared to fiscal 2010, driven by a significant increase in the average gold price (from R 264,231/kg to R 369,139/kg).
- Cost Inflation: Total cash costs per kilogram increased by 24% in fiscal 2011 compared to fiscal 2010, rising from R 177,650/kg to R 220,224/kg. This was driven by wage increases, higher electricity tariffs, and inflationary pressures.
- Discontinued Operations: The South Deep mine was distributed to Gold Fields in December 2010 and is now reported as a discontinued operation. Consequently, its production and financial results are excluded from Sibanye Gold's current reporting.
Guidance, Outlook, and Risks
Outlook and Strategy: As an independent entity, Sibanye Gold intends to ring-fence its cash flows to fund its own objectives, including a strong dividend policy (targeting 25% to 35% of normalised earnings). The company plans to focus on operational optimization, cost containment, and extending the life of its mature mines. It also intends to selectively pursue synergistic acquisition opportunities within the South African gold industry.
Key Risks and Contingencies:
- Labour Disputes: The company faces significant risk from strikes and union activity, which have historically caused production stoppages. Future wage negotiations are expected to be difficult.
- Health and Safety: Deep-level mining poses risks of seismicity, falls of ground, and industrial accidents. Regulatory authorities have broad powers to close mines for safety violations.
- Commodity Price Volatility: Profitability is highly sensitive to fluctuations in the global gold price.
- Currency Risk: Revenues are in US Dollars while costs are primarily in South African Rand. A strengthening Rand materially harms operating results.
- Legal Litigation: The company is a respondent in class action applications regarding silicosis and other occupational lung diseases. While the potential liability cannot be quantified at this stage, it could have a material adverse effect on financial condition.
- Acid Mine Drainage (AMD): There is a risk of long-term environmental liability related to AMD, though the financial impact is not reliably determinable.
Important Facts for Investor Verification
- Unbundling Mechanics: Verify the 1:1 distribution ratio of Sibanye Gold shares to Gold Fields shares and the specific record date (February 15, 2013) and listing date (February 11, 2013).
- Debt Structure: Confirm the settlement of inter-company loans (approx. R 20.6 billion) via share subscription and the terms of the new R 6.0 billion Bridge Loan Facility entered into in November 2012.
- Guarantees: Note that Sibanye Gold remains a guarantor for the US$ 1 billion notes issued by Orogen (due 2020), though an indemnity agreement is in place to protect Sibanye Gold from liability.
- Reserve Estimates: Review the Competent Persons' Report (Annexure 10) for the 21.5 million ounces of gold reserves and the assumptions regarding gold prices and production costs used in these estimates.
- Dividend Policy: Verify the dividend policy constraints, specifically that dividends are limited to 25% of normalised earnings for the 2013 financial year unless gross debt remains below R 4 billion.