Communicators

Sibanye-Stillwater: Operating and financial results for the six months and year ended 31 December 2018

JOHANNESBURG, 21 February 2019: Sibanye Gold Limited trading as Sibanye-Stillwater (Sibanye-Stillwater or the Group) (JSE: SGL & NYSE: SBGL) is pleased to report operating and financial results for the six months ended 31 December 2018, and reviewed condensed consolidated preliminary financial statements for the year ended 31 December 2018.

SALIENT FEATURES FOR THE SIX MONTHS AND YEAR ENDED 31 DECEMBER 2018

–­         New safe production record of 6.5 million fatality free shifts achieved by the Group

–­         Another consistent operational result from the SA and US PGM operations - achieving production and cost guidance

–­         High return Fill the Mill project at the East Boulder mine to add further 5% to annual production from US PGM operations by 2022

–­         Production from SA Gold operations negatively impacted by operational disruptions

–­         Adjusted EBITDA of R8,369 million (US$632 million) only 8% lower despite the prolonged AMCU strike

–­         Progress made on deleveraging with Net Debt to adjusted EBITDA of 2.5x

–­         Significant value creation expected to flow through from PGM strategy as the PGM basket price increases significantly into 2019

–­         Acquisition of SFA Oxford to facilitate future strategic development in high tech metals

1   The Platinum Group Metals (PGM) production in the SA Region is principally platinum, palladium, rhodium and gold, referred to as 4E (3PGM+Au), and in the US Region is principally platinum and palladium, referred to as 2E (2PGM)

2   The Group reports adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) based on the formula included in the facility agreements for compliance with the debt covenant formula. Adjusted EBITDA may not be comparable to similarity titled measures of other companies. Adjusted EBITDA is not a measure of performance under IFRS and should be considered in addition to, and not as a substitute for, other measures of financial performance and liquidity. For a reconciliation of profit/loss before royalties and tax to adjusted EBITDA, see note 10 of the condensed consolidated preliminary financial statements. Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by revenue

3   See “salient features and cost benchmarks – six months” for the definition of All-in sustaining cost

4   The gold operations’ results for the six months and year ended 31 December 2018 include DRDGOLD Limited (DRDGOLD) for the five months since acquisition

5   The US PGM operations’ underground production is converted to metric tonnes and kilograms, and performance is translated into SA rand. In addition to the US PGM operations’ underground production, the operation processes recycling material which is excluded from the 2E PGM production, average basket price and All-in sustaining cost statistics shown. PGM recycling represents palladium, platinum, and rhodium ounces fed to the furnace. The US PGM operations results for the year ended 31 December 2017 are for eight months since acquisition (in May 2017)

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STATEMENT BY NEAL FRONEMAN, CHIEF EXECUTIVE OFFICER OF SIBANYE-STILLWATER

The significant improvement in the safety performance across the Group in H2 2018, which has re-established and improved on our previous industry-leading safety performance, was a notable and welcome highlight. The Group achieved six and a half million fatality free shifts on 14 February 2019, during a fatality free run since mid-August 2018, and which has continued into February 2019. Whilst this significant safety milestone has gone a long way to restoring market confidence in Sibanye-Stillwater as a responsible operator following the acute concerns in H1 2018, we will remain focused on maintaining and improving on our safe production performance as our first priority at all of our operations.

Despite the numerous challenges we faced during the year, it was extremely pleasing to note the manner in which the Sibanye-Stillwater team pulled together to proactively address these challenges. I firmly believe that the Group has ultimately emerged stronger, and better positioned to continue delivering superior value to all stakeholders.

The PGM operations in both Southern Africa (SA) and the United States (US), maintained steady operating performances, with revenues benefiting significantly from higher palladium and rhodium prices in 2018. The benefits of the Group’s well timed diversification into the PGM sector as well as the geographical diversification resulting from the acquisition of Stillwater, are clearly evident in the financial results, with the solid operating and financial performance of the PGM operations compensating for the operational challenges experienced at the SA gold operations.

The Group’s dominant source of earnings is now our US PGM operations, which accounted for approximately 50% of Group adjusted EBITDA in 2018, with the adjusted EBITDA margin for the US PGM underground operations, increasing from 43% in 2017 to 46% in 2018, primarily due to the surging dollar palladium price and strong operational performance. The contribution from the SA PGM operations has also increased substantially, due the improved rand PGM basket price and solid, sustained operational performance. In 2018 the SA PGM operations contributed 34% of Group adjusted EBITDA, up from 18% in 2017, with the adjusted EBITDA margin increasing year-on-year from 12% to 19%.

Unfortunately, the emerging recovery in the operational performance of our SA gold operations in H2 2018 was interrupted by the strike called by the Association of Mineworkers and Construction Union (AMCU) on 21 November 2018. While ostensibly related to wages, we believe that this irresponsible action was undertaken to promote an alternative, more parochial agenda. Response plans have been put in place to maintain peace and stability in order to ensure the safety of our employees as far as possible, and mitigate financial losses by optimising production through the concentration of underground mining activity to specific operating areas, and reducing fixed costs by switching off services and utilities across areas where production activity has been suspended. Whilst these strike plans have been implemented across the operations, the strike action continues to impact on our operations to varying extents.

The AMCU strike action has continued into 2019, despite the other unions having secured a majority membership. Continued legal and procedural challenges have been raised by AMCU since then, which have maintained the protected status of the strike. We continue to pursue all avenues to bring this destructive strike action to an end and ensure the wellbeing of our employees.

Despite a flat average rand gold price received year-on-year, the impact of the safety incidents and other unanticipated operational disruptions as well as the strike, caused production from the core SA gold operations to decrease by 2,345kg (75,390oz), resulting in adjusted EBITDA from the SA gold operations declining by 74% to R1,362 million. The SA gold operations contributed only 16% of Group adjusted EBITDA in 2018, compared with 58% in 2017, with the adjusted EBITDA margin declining from 23% in 2017 to 7% in 2018.

Irrespective of the strike action, certain business units at the SA gold operations have experienced ongoing losses, and restructuring has become imperative to establish a sustainably profitable operating footprint. This led to the Company giving notice on 14 February 2019, in terms of Section 189A of the Labour Relations Act (Section 189A), that it would be commencing formal consultations with employees and other stakeholders regarding possible restructuring of specific business units at its SA gold operations.

Proactive steps to address our balance sheet leverage were taken during the year, with the US$500 million stream transaction which was secured in July successfully applied towards reducing our long term debt and financial leverage. Further progress on our deleveraging strategy has been delayed by the sharp decline in adjusted EBITDA from our SA gold operations in 2018, with the Group’s net debt to adjusted EBITDA (Net Debt:adjusted EBITDA) ratio of 2.5x at the end of 2018, only marginally improved on the position at the end of 2017. Having secured an extension of the 3.5x Net Debt:adjusted EBITDA ceiling until the end of 2019 and a covenant holiday for Q1 2019, we have sufficient headroom on our lender covenants and our liquidity remains adequate. Ongoing strength in spot precious metals prices in 2019 is expected to support our deleveraging efforts in the coming year.

Despite delays to the expected conclusion of the proposed Lonmin acquisition, following an appeal by AMCU against the ruling made by the South African Competition Tribunal in November 2018 to approve the acquisition, subject to certain specific conditions imposed on Sibanye-Stillwater, we remain committed to the acquisition and expect the conclusion of the Lonmin acquisition during H1 2019. The increased size and complexity of the SA PGM operations once the Lonmin acquisition has been completed, and the critical importance of restoring the SA gold operations to profitability, will require a more intense medium term management focus. Our organisational structure has therefore been refreshed, with dedicated senior management teams appointed at the SA gold and SA PGM operations to optimise operational performance, and centralised Group functions to provide services and ensure a sharper focus on driving strategic priorities for the Group. The US PGM operations leadership team remains unchanged. The leadership teams will provide dedicated leadership geared to the specific priorities of each operating segment and will actively drive critical strategic portfolios at Group level.

Overall, 2018 was a mixed year during which we experienced an anomalous number of disruptive events concentrated at our South African gold operations. Despite the challenges, we have concluded the year in a strong position to pursue our strategic trajectory of creating superior value for all stakeholders. More specifically we look forward to the value creation flowing into our market valuation as we deliver according to plan in a constructive global climate for precious metals.

Safety

A number of significant safety milestones have been achieved since the 2018 interim results were reported in August 2018. The Group operations have been fatality free since mid-August, recording a total of six and a half million fatality free shifts by 14 February 2019, with the SA PGM operations achieving four million fatality free shifts on 20 February 2018 and the SA gold operations achieving three million fatality free shifts on 31 January 2019. The improvement in the safety performance across the Group in H2 2018, resulted in the Group combined injury rates being essentially flat year-on-year, with a slight deterioration in injury rates at the SA gold operations and the US PGM operations, offset by a significant improvement in injury rates from the SA PGM operations, where the Serious Injury Frequency Rate and Lost Day Injury Frequency Rate improved by 19% and 14% respectively, in the process setting new benchmarks for moderate to deep level hard rock mining in South Africa. These are commendable achievements considering the proportion of deep level mining that is conducted across the Group and the number of people who operate in this environment on a daily basis, and are in stark contrast to the fatalities experienced during H1 2018.

This performance has restored and improved on Sibanye-Stillwater’s historical, industry leading safety record, but we are conscious that we operate in a dynamic environment, which can change rapidly, as we experienced in H1 2018, and as such, requires continual vigilance, review and innovation to ensure ongoing improvement towards our ultimate goal of zero harm in the workplace. Nonetheless, the reduction in injury rates since August 2018 gives us confidence that the safety improvement programmes that we have implemented are proving effective, and we remain focused on maintaining our position as the benchmark safety performer in both the SA gold and PGM mining industries.

In this regard, a number of safe production initiatives have advanced considerably, with short term, high-impact interventions vigorously implemented across the operations, and notable progress made with our medium to long term safe production initiatives. These include the constitution of our Global Safe Production Advisory Panel, comprised of five leading safety experts from around the world, to assist in adopting a more forward looking position that anticipates the emergence of new leading safety practices, and investing in the identification and development of new safe production technologies through the DigiMine Partnership with the University of Witwatersrand, complemented by a global academic network of leading mine safety experts. The “Zero Harm Strategic Framework”, which was developed through multi-stakeholder collaboration during three Safety Summits convened by Sibanye-Stillwater, will also guide our long term sustainable safety improvements in 2019 and beyond.

OPERATING AND FInancial OVERVIEW

OPERATING REVIEW

US PGM operations

The US PGM operations delivered a solid operating and financial performance for the year ended 31 December 2018. Mined 2E PGM production for the year of 592,608 2Eoz was towards the upper end of market guidance, reflecting the ongoing buildup of production at Blitz and record production from the East Boulder mine, with AISC of US$677/2Eoz in line with annual guidance. Mined 2E PGM production for H2 2018 of 298,649oz was 5% higher than for H2 2017, reflecting additional production from Blitz. AISC of US$701/2Eoz for H2 2018, reflects the higher AISC of US$769/2Eoz for Q3 2018, arising from higher maintenance costs and planned outages at the metallurgical complex, with AISC for Q4 2018 significantly lower at US$642/2Eoz. AISC for 2018 was also negatively affected by higher royalties resulting from higher PGM prices, with AISC increasing 1% for a 20% increase in the 2E PGM basket price.

After regressing in Q3 2018, the palladium price regained its momentum in Q4 2018, with palladium and rhodium ending the year strongly. The 9% year-on-year increase in the average 2E PGM basket price received to US$1,007/2Eoz, coupled with the strong operating performance, boosted adjusted EBITDA for 2018 to US$314 million (R4,152 million) with the average adjusted EBITDA margin of the underground operations increasing from 43% for 2017 to 46% for 2018 and adjusted EBITDA from the US PGM operations as a whole (including the lower margin recycling operations) increasing from 23% for 2017 to 26% for 2018.

Despite the ongoing rebuild and expansion of the second electric furnace (EF2), the Columbus Metallurgical Complex performed well, processing 619,683oz of mined 2E PGM and 686,592oz of recycled 3E PGM. The recycling division averaged 22.0 tonnes of feed material per day in 2018, compared to an average feed rate of 23.9 tonnes per day in 2017. This is a noteworthy achievement, given the smelting constraints experienced by the Metallurgical Complex during the year. The re-commissioning of EF2 during January 2019 adds additional smelter capacity and significantly enhance flexibility for the balance of the year.

Capital expenditure of US$214 million was marginally lower than market guidance of US$220 million. This capital expenditure is evenly split between sustaining and growth/project capital for the ongoing development and production ramp-up from Blitz. Blitz is on schedule, with three stope blocks successfully commissioned and in production. Two additional stopes are scheduled for commissioning in 2019, adding a further 40,000 2Eoz – 60,000 2Eoz of annual production. Ten producing areas/stopes are expected to be commissioned at Blitz by late 2021, adding an average of 300,000 2Eoz of annual production from 2022.

Higher forecast capital expenditure for 2019 of between US$235 million and US$245 million, includes incremental capital associated with the Fill the Mill Project (FTM) at the East Boulder mine, which was recently approved by the Board. The FTM is forecast to deliver approximately 40,000oz of annual 2E PGM production from late 2020, over a 10 year period, through an incremental expansion of mining and certain support facilities at the East Boulder Mine and Columbus Metallurgical Complex. The incremental cost of the project approximates US$29 million (capital expenditure of US$19 million and additional operating costs of US$10 million), with the project yielding an NPV of more than US$100 million (an IRR of approximately 88%) at conservative consensus prices. Critically, the additional production from the FTM is expected to reduce operating costs at the East Boulder mine by approximately 5% over the project’s 10-year life.

The positive basket price momentum from the December 2018 quarter, has continued into 2019, with the current spot 2E PGM basket price of approximately US$1,330/2Eoz (at 19 February 2019), 32% higher than the average realised 2E PGM basket of US$1,007/2Eoz in 2018, and 72% higher than the prevailing 2E PGM price of approximately US$770/2Eoz when the acquisition of Stillwater was announced in 2016. This bodes well for operating margins, adjusted EBITDA and underlying cash flow generation from the US PGM operations in 2019.

SA PGM operations

The SA PGM operations continued to perform strongly, with full year 4E PGM production of 1,175,672oz for the year ended 31 December 2018, exceeding the upper limit of guidance, and average AISC well below the lower guidance limit of R10,750/4Eoz (US$825/4Eoz). 4E PGM production of 606,506oz for H2 2018 was marginally higher than for the comparable period in 2017, with AISC of R10,706/4Eoz (US$755/4Eoz) 3% higher year-on-year, but well below South African annual inflation rates.

Kroondal again delivered record production of 134,712oz in H2 2018, 6% higher than its previous best performance, which was achieved in H2 2017. Kroondal AISC of R9,547/4Eoz (US$673/4Eoz) was 5% lower than for the same period in 2017, primarily benefiting from higher production as well as a chrome by-product credit of R233 million which was realised during the period.

Production from Rustenburg was 1% lower than for H2 2017 at 399,628oz, due to lower surface production, with underground production consistent with H2 2017. AISC at the Rustenburg operations was 5% higher year-on-year at R11,141/4Eoz (US$786/4Eoz), with solid cost management offsetting a number of above inflation cost increases (including wages and electricity), higher capital expenditure and royalties when compared to the comparable period in 2017.

Attributable 4E PGM production from Mimosa of 62,306oz was 2% lower than for H2 2017, with the operations performing well despite the turbulent political and economic environment in Zimbabwe.

Despite ongoing weakness in the platinum price, the average 4E PGM basket price for H2 2018 was 13% higher at R14,729/4Eoz (US$1,039/4Eoz) than for H2 2017, mainly due to significant increases in palladium and rhodium prices (which comprise approximately 31% and 9% of the 4E prill split respectively) and a weaker rand exchange rate. The average 4E PGM basket price for the year ended 31 December 2018 of R13,838/4Eoz (US$1,045/4Eoz), was 10% higher year-on-year.

The significant leverage of the SA PGM operations to the higher basket prices as a result of a disciplined operating performance is evident in the 67% year-on-year increase in adjusted EBITDA to R1,881 million (US$136 million) for H2 2018. Similarly, adjusted EBITDA for the full year of R2,882 million (US$218 million) was 81% higher than for 2017, with the adjusted EBITDA margin increasing from 12% in 2017 to 19% in 2018. As with the US PGM operations, the spot 4E PGM basket price (AT 19 February 2019) of approximately R16,860/4Eoz (US$1,200/4Eoz), if sustained, suggests further gains in adjusted EBITDA and cash flows from the SA PGM operations in 2019.

Impact of changes to processing arrangements for the Rustenburg operations from 1 January 2019

In line with Sibanye-Stillwater’s mine-to-market PGM strategy and according to the processing agreements with Anglo American Platinum Limited (Anglo Platinum), the processing arrangement for Rustenburg production changed from a Purchase of Concentrate arrangement (PoC) to a Toll processing arrangement from 1 January 2019.

In terms of the PoC arrangement, Sibanye-Stillwater delivered metals concentrate from the Rustenburg operations to Anglo Platinum for smelting and refining, with Anglo Platinum retaining a percentage of the metal in concentrate as payment for processing the concentrate. The cost of this PoC charge was offset against revenue and reflected as an equivalent discount to the average 4E PGM basket price.

In terms of the Toll arrangement, Sibanye-Stillwater will pay an agreed rate to Anglo Platinum to smelt and refine concentrate from the Rustenburg operations, but will own and sell all the refined metal produced. From a reporting perspective, Sibanye-Stillwater will no longer reflect a discount in its revenue and will receive the full average 4E PGM basket price, though costs and unit costs will be higher than under the PoC arrangement, reflecting the additional tolling costs.

At the current spot 4E PGM basket price, the net result of this contractual change has a positive financial impact, with the increased revenue more than offsetting the additional toll cost, and as a result is beneficial both commercially and strategically. The change in the arrangement however results in a delay in the recognition of revenue, due to the point of sale being extended to the end of the processing pipeline, which affects the recognition of revenue for 2019.

Under the PoC arrangement, a sale was recognised and accounted for on delivery of concentrate to Anglo Platinum, as the risks and rewards of ownership passed to Anglo Platinum pursuant to the sales contract. The sales price was previously determined on a provisional basis and adjustments to the sales price were made, based on movements in the metal prices up to the date of final pricing. Under the toll arrangement a sale will only be accounted for after the refined metals are sold, approximately four months after delivery of the concentrate to Anglo Platinum, which from an accounting perspective, is the point when the risks and rewards of ownership are transferred to the customer.

This change results in:

–­         the revenue recognition cycle being delayed, with minimal revenue and earnings recognised from the Rustenburg operations during Q1 2019, with an associated deferral of the recognition of costs

–­         a permanent increase in Inventory, and a similar reduction in trade receivable balances, so the net impact on working capital is minimal and

–­         cash flow is largely unaffected

As a result of these changes, adjusted EBITDA from the Rustenburg operations will not be recognised during Q1 2019, which will impact our Net Debt: adjusted EBITDA leverage ratios during the transition of the commercial arrangements. Following further discussions with our lenders, a covenant holiday for Q1 2019 has been agreed. We consequently have sufficient headroom on our lender covenants, and liquidity remains adequate.

SA gold operations

As announced on 1 August 2018, all conditions precedent to the DRDGOLD Limited (DRDGOLD) transaction were met and the transaction was implemented on 31 July 2018. Sibanye-Stillwater consolidated DRDGOLD in its operating and financial results from 1 August 2018 and the current operating results include 1,870kg (60,122oz) from DRDGOLD.

Total gold production, including DRDGOLD, declined by 16% year-on-year to 36,600kg (1,176,600oz) primarily due to the impact of the anomalous H1 2018 safety incidents and other operational disruptions (the disruption of electrical power to the Beatrix operations and seismic damage to infrastructure at the Driefontein 1 and Kloof 3 shafts) and the AMCU strike in the second half of the year, as well as the cessation of underground mining at the Cooke operations in late 2017, which accounted for 956kg (30,736oz) or 32% of the reduction. On a like for like basis, gold production (excluding DRDGOLD and the Cooke underground operations) also declined by 16% year-on-year to 34,676kg (1,114,800oz).

The impact of the 16% decline in production year-on-year is evident in the 15% increase in AISC for 2018 to R557,530/kg (US$1,309/oz), despite cost of sales before amortisation and depreciation (including DRDGOLD and the Cooke underground operations) remaining flat year-on- year. The significant fixed overhead cost component (over 80% of operating costs) for the SA gold operations, makes costs very sensitive to production volume changes and as a result, unit costs such as AISC invariably increase with reductions in production volumes.

Like-for-like production from the SA gold operations (excluding DRDGOLD and the Cooke underground operations), for H2 2018, declined by 24% to 16,066kg (516,523oz). Cost of sales before amortisation and depreciation for H2 2018 increased in absolute terms by approximately 4% to R9,326 million (US$657 million). AISC was negatively impacted by the production disruptions as detailed above and increased by 24% year-on-year, to R596,100/kg (US$1,308/oz).

Underground production from the Driefontein operations of 3,603kg (115,839oz) for H2 2018, was 45% lower year-on-year, due to repairs to the footwall infrastructure of the Masakhane shaft in H2 2018, following the seismic damage in May 2018 and impact of the AMCU strike, with Driefontein the worst affected of our SA gold operations. The footwall infrastructure at the Masakhane shaft has been successfully rehabilitated, but the anticipated production buildup in the area has been delayed by the strike. Gold production from surface sources decreased by 78% to 180kg (5,787oz) due to the depletion of surface reserves and the disposal of No. 2 and No. 3 Plants to DRDGOLD. AISC was significantly impacted by the decline in production, with AISC for H2 2018 increasing by 73% to R866,984/kg (US$1,902/oz), despite cost of sales before amortisation and depreciation decreasing by 12%. The possible restructuring of specific shafts at Driefontein and a recovery in volumes once the strike has ended is expected to return the operation to profitability during 2019.

Underground production from the Kloof operations decreased by 23% to 6,165kg (198,210oz) compared with the same period in 2017. Production volumes decreased by 22%, most notably at 3 and 4 Shafts, which were affected by the trauma caused by the H1 safety incidents and the AMCU strike. Surface production increased by 45% to 1,183kg (38,037oz) due to the additional milling capacity as a result of the lower underground production and the decision to process Kloof surface material at Driefontein and Ezulwini. Lower gold production was again the primary factor driving a 23% increase in AISC to R517,096/kg (US$1,134/oz).

At the Beatrix operations, underground gold production for H2 2018 decreased by 11% to 4,016kg (129,117oz), primarily due to the strike that affected production in Q4 2018. Gold production from surface sources increased by 59% to 140kg (4,501oz), due to a 27% increase in throughput mainly as a result of the strike impacting underground production volumes. As a result of lower production, AISC increased by 6% to R532,603/kg (US$1,168/oz).

Underground production from the Cooke Operations decreased by 93% to 74kg (2,379oz) following the cessation of underground operations in November 2017, with final clean-up by December 2017. No underground gold was subsequently produced from the Cooke operations other than the clean-up of mud dams. Surface gold production increased by 87% to 731kg (23,502oz) due to a 94% increase in processed volumes (to 2,293,000t) due to the inclusion of Dump 38 and the acquisition of third party material, which resulted in an additional 312kg (10,031oz) of gold for the period under review.

The average received rand gold price for 2018 of R535,929/kg (US$1,259/oz) was flat year-on-year, which, combined with the significant decline in production, resulted in adjusted EBITDA from the SA gold operations declining to R1,362 million (US$103 million) from R5,309 million (US$399 million) in 2017. The spot gold price has increased in 2019, with the current spot price (at 19 February 2019) of approximately R605,000/kg (US$1,341/oz), 12% higher than the 2018 average price, which will significantly benefit earnings and cash flow from the SA gold operations, once production volumes have normalised.

S189 consultation

Whilst the profitability of the SA gold operations is currently distorted by the production impact of the safety incidents and ongoing strike action, there are fundamental profitability issues, particularly at the Driefontein 2,6,7,8 shafts and at Beatrix 1 shaft. These will be addressed through consultation with stakeholders in terms of Section 189A of the Labour Relations Act, with notice in this regard given to stakeholders on 14 February 2019.

This follows notices which were issued under Section 52(1)(a) of the MPRDA in October 2018 in respect of both Beatrix and Driefontein, advising stakeholders of the marginal profitability of the mining rights that should have prompted engagements with the stakeholders on each of the mines around measures that could be taken to secure improved financial sustainability. Sadly, such constructive engagements did not transpire, as strike-related issues dominated the intervening period.

Through the formal Section 189A consultation process, the Company and affected stakeholders will together consider measures to avoid and mitigate possible retrenchments of up to 5,780 employees and 800 contractors, and seek alternatives to the potential cessation or downscaling of operations at the affected shafts. We are confident that this process will reposition the SA gold operations for sustainable, profitable safe production.

Financial ReView

The inclusion of the US PGM operations for the full year in 2018 (compared with eight months in 2017), and the cessation of the Cooke underground operations in November 2017, together with the full consolidation of DRDGOLD’s operational and financial results from 1 August 2018, distorts a direct comparison between the 2018 and 2017 financial results. For a detailed financial review including a like-for-like reconciliation, see “Financial and operating review of the Group”.

The solid production results from both the US and SA PGM operations and higher PGM basket prices, offset lower revenue from the SA gold operations, due to the operational disruptions and a flat rand gold price year-on-year.

Group revenue for 2018 of R50,656 million was 10% higher than for the comparable period in 2017, with a 73% increase in revenue from the US PGM operations and a 14% increase in revenue from the SA PGM operations This offset a 16% decline in revenue from the SA gold operations.

Group adjusted EBITDA in 2018 of R8,369 million (US$632 million) declined by 7% from R9,045 million (US$680 million) for 2017, despite adjusted EBITDA from the US PGM operations and SA PGM operations increasing by 94% and 81%, respectively. The 16% decline in gold production caused an 74% decline in adjusted EBITDA from the SA gold operations.

Group Free Cash Flow (FCF) was similarly impacted by the operational disruptions experienced by the SA gold operations. The Group recorded negative FCF of R12 million (US$1 million) for 2018, which was an R850 million (US$ 64 million) improvement relative to the comparable period in 2017, with negative FCF of R1,093 million (US$83 million) from the SA gold operations, offset by a tenfold increase in FCF from the SA PGM operations to R881 million (US$67 million) and FCF from the US PGM operations of R387 million (US$29 million), which was significantly higher than negative FCF of R483 million (US$36 million) for 2017. The significant increase in precious metals prices in 2019 thus far, if sustained, will have extremely positive implications for Group FCF for 2019.

The US$500 million stream, which was raised in July 2018 was well timed, with the proceeds applied to reduce debt. Net debt at 31 December 2018 of R21,269 million was 8% lower than at the end of 2017 as a result. From a Group leverage perspective however, the benefits of the reduction in debt were largely offset by the 7% decline in adjusted EBITDA discussed above, with the Group’s Net Debt:adjusted EBITDA ratio of 2.5x at the end of 2018, only marginally improved on the 2.6x ratio at the end of 2017. The outlook for Group earnings and cash flow however is more positive however, with continued strength in spot precious metals prices in 2019, if sustained, positive for Group cash flow and supportive of meaningful deleveraging during the course of the year.

The leverage covenant is calculated using the trailing 12 month adjusted EBITDA. Due to the lagging impact of lower adjusted EBITDA for 2018 and the change in our processing arrangements with Anglo Platinum on the Group’s leverage ratios, the Sibanye-Stillwater Board deemed it prudent to obtain approval to extend the 3.5x Net Debt:adjusted EBITDA upper limit of the existing debt covenants until the end of 2019.

The impact of the change from PoC to a toll processing arrangement for concentrate on reporting of revenue and costs from the Rustenburg operations and the impact on the Q1 2019 financials, and consequently the debt covenants with our lenders, has been covered in the SA PGM operations section of this report.

CORPORATE ACTION

SFA (Oxford)

In 2016, with the acquisition of Aquarius Platinum, Sibanye-Stillwater entered the PGM sector. This entry was underpinned by extensive market research on PGM market fundamentals, which identified an opportunity at a favourable phase in the commodity cycle. This fundamental knowledge base has underpinned the Group’s continued growth in the PGM markets, and provided an informed view of automobile markets, specifically positioning the Group to understand and project future power train scenarios as related to internal combustion engines, hybrid electric, battery electric and fuel cell powered vehicles. The continued understanding of both automobile market forces and analysis of likely advances in battery and power train technologies will provide Sibanye-Stillwater with an opportunity to continue to leverage off this knowledge base in order to position Sibanye-Stillwater to play an ongoing, significant role in delivery of metals necessary for future power train requirements to the market.

To support the implementation of this strategic positioning, Sibanye-Stillwater has agreed to acquire SFA (Oxford) (pending certain conditions), an established analytical consulting company that is a globally recognised authority on PGMs and has for several years provided in-depth market intelligence on battery materials and precious metals for industrial, automotive, and smart city technologies.

The acquisition cost compares favourably to the cost of setting up a similar analytical and research group internally but significantly leapfrogs the time required to build up the intellectual knowledge. While Sibanye-Stillwater will have board representation consistent with its equity holding, SFA (Oxford) will continue to operate as an independent company, continuing to provide services to global clients on metal market analysis. As a result of the continued independent consulting services provided by SFA (Oxford), it is expected to be operating cost neutral to Sibanye-Stillwater. Post completion of the acquisition of SFA (Oxford), Sibanye-Stillwater will retain an 80% equity stake in the company with the balance being apportioned to an employee ownership scheme to serve as both an incentive and retention scheme. In this regard, Stephen Forrest will remain as Chairman of the SFA (Oxford) board and a non-executive director, Jim Sutcliffe, will be appointed to the SFA Oxford board.

The proposed Lonmin acquisition

On 14 December 2017 an all share offer by Sibanye-Stillwater to acquire 100% of Lonmin plc was announced. The Board of Sibanye-Stillwater believes that the proposed acquisition is a logical step in further progressing its PGM strategy, during a low phase in the platinum price cycle and is value accretive for Sibanye-Stillwater shareholders. On 19 December 2018, it was announced that AMCU had filed an appeal against the ruling made by the South African Competition Tribunal to approve the proposed acquisition. The Competition Appeal Court of South Africa (the CACSA) has set down 2 April 2019 as the date for the hearing of the appeal. As announced on 15 January 2019 Sibanye-Stillwater and Lonmin have agreed to extend the long-stop date for completion of the proposed acquisition to 30 June 2019.

1   The Lonmin acquisition remains subject to a number of conditions, including relevant approvals by Lonmin and Sibanye-Stillwater shareholders and the approval of the High Court of Justice of England and Wales. For further information in relation to the proposed acquisition, refer to offer announcement dated 14 December 2017, available on https://www.sibanyestillwater.com/investors/transactions/lonmin

Net ASSET value

Sibanye-Stillwater has consciously undergone a significant transformation, from a limited-life, high-cost South African gold producer, when it was unbundled in February 2013 from Gold Fields Limited, into a leading global precious metals producer. A successful turnaround at the SA gold operations enabled R4.1 billion to be returned to shareholders in the first five years, at an average dividend yield of 4.9%, which was equivalent to 41% of the market capitalisation on listing. Subsequent strategic growth in the PGM industry has established Sibanye-Stillwater as one of the largest PGM producers globally within three years and during a low phase in the PGM price cycle.

The Aquarius Platinum and Rustenburg operations were respectively acquired in April and November 2016, when the 4E PGM basket price was between R11,800/4Eoz and R12,400/4Eoz. The transformative Stillwater transaction was concluded in May 2017, when the 2E basket price was approximately US$880/oz. The significant increase in PGM basket prices since these transactions were concluded, with the 4E PGM basket spot price at R16,860/4Eoz and the 2E PGM basket spot price at approximately US$1,330/2Eoz, has substantially enhanced earnings and cash flow from our PGM operations, as well as resulting in a significant uplift in the value of our PGM acquisitions.

At current market consensus commodity prices and exchange rates, and based on our Life of Mine (LoM) plans (discounted at an average rate of approximately 7.5% real), we have determined a NAV for the Group of approximately R80 billion. At spot precious metals prices (at 18 February 2019), the NAV increases to approximately R101 billion. Sibanye-Stillwater is currently trading at a 0.35x price to NAV, which is substantially lower than the average price to NAV of its South African gold and PGM peers. Our primary focus in 2019 will be to ensure that the inherent value in our NAV flows through into our share price to reduce the price to NAV discount, through consistent operational and financial delivery that reflects the benefits of the improved gold and PGM commodity price environments. Aspects beyond management control such as volatile commodity prices, cost escalation, production disruptions, and changes to tax and other regulations could however, materially impact the Group NAV.

OUTLOOK

Mined 2E PGM production from the US PGM operations for 2019, is forecast at between 645,000oz and 675,000oz, due to the continued production buildup from Blitz. AISC is forecast to be between US$690/2Eoz – US$730/2Eoz, with the majority of the expected AISC increase attributed to increased capital expenditure and as a result of higher royalties due to the higher PGM basket price. Total capital spend for the year is guided at between US$235 million and US$245 million for the year. Approximately half of this anticipated spend is growth capital in nature, including expenditure on the FTM.

4E PGM production from the SA PGM operations for 2019 is forecast at between 1,000,000oz and 1,100,000oz with AISC between R12,500/4Eoz and R13,200/4Eoz (US$922/4Eoz and US$974/4Eoz), reflecting the transition to the toll processing arrangement. Capital expenditure is forecast at R1400 million (US$103 million), which includes approximately R230 million (US$17 million) of project capital.

Guidance for the SA gold operations will be provided once the protracted AMCU strike has been terminated and the S189 process has been completed.

The dollar costs are based on an average exchange rate of R13.55/US$.

The extent and severity of the challenges that Sibanye-Stillwater faced, and dealt with, in 2018 is unprecedented, and whilst a number of challenges still face us, the manner in which the Sibanye-Stillwater team has responded to and dealt with the various crises, gives me confidence that we are well positioned to continue delivering superior value to all of our stakeholders.

Our significant investment in the PGM industry was not made lightly and was against conventional market wisdom. The fruits of this contrarian, but carefully considered strategy have already delivered tangible benefits, which are not yet reflected in our market valuation. A positive and sustainable fundamental outlook for PGMs is increasingly being accepted and Sibanye-Stillwater’s commodity mix and geographical diversification offers a unique investment opportunity.

I am confident that the Section 189A consultations with stakeholders regarding the future of certain shafts at our SA gold operations, will result in a more stable and profitable business segment, which will contribute positively to Group earnings in future.

Precious metal prices, particularly palladium and rhodium, have surged in 2019, with the recent depreciation of the rand US dollar rate, which is a significant revenue driver, boosting revenues for South African mining companies. The operating environment in South Africa remains challenging, though recent political changes and a seemingly more investment oriented approach by the Government, is positive. While structural changes are yet to be seen, general sentiment around the country’s prospects for economic stability and growth have improved.

I am convinced that Sibanye-Stillwater offers tangible fundamental value and is strategically positioned to benefit from any further upside in precious metals prices.

Neal Froneman

Chief Executive Officer

FINANCIAL AND OPERATING REVIEW OF THE GROUP

For the six months ended 31 DECEMBER 2018 (H2 2018) compared with the six months ended 31 DECEMBER 2017 (H2 2017)

Direct comparison of the SA rand results for the Group is difficult as Stillwater’s results are translated to SA rand at the average exchange rate, which for H2 2018 of R14.18/US$ was 6% weaker than for H2 2017 of R13.41/US$. A direct comparison of Stillwater’s US dollar results, therefore, is also included.

Further to this, the consolidation of DRDGOLD for five months since implementation of the DRDGOLD Transaction on 31 July 2018 makes direct comparison with the financial results for the six months ended 31 December 2017 difficult.

The revenue, cost of sales, before amortisation and depreciation, net other cash costs, adjusted EBITDA and amortisation and depreciation are set out in the table below:

Figures in millions - SA rand

1 The streaming transaction (note 14) not recognised in Stillwater segment.

Revenue

Revenue was flat at R26,746 million (US$1,884 million) from R26,692 million (US$1,995 million). Revenue from the US PGM increased by 10% to US$594 million (17% to R8,432 million) and the SA PGM operations increased by 15% to R8,365 million (US$593 million), mainly due to the higher average basket price received compared with H2 2017. Revenue from the SA gold operations including DRDGOLD decreased by 18% and excluding DRDGOLD of R1,048 million (US$79 million), revenue decreased by 27% to R8,928 million (US$619 million) The significant operational challenges experienced at the SA gold operations during H1 2018, additional safety improvement interventions undertaken and the AMCU strike at the end of 2018 affected production.

Cost of sales, before amortisation and depreciation

Cost of sales, before amortisation and depreciation increased by 7% to R21,872 million (US$1,540 million). This included US$434 million (R6,167 million) at the US PGM operations, which increased by 6% (13%) due to higher maintenance costs and planned outages at the Metallurgical Complex in Q3 2018, and R6,380 million (US$449 million) at the SA PGM operations, which increased by 5% due to above inflation increases in wages and electricity partly offset by synergies realised. Cost of sales, before amortisation and depreciation at the SA gold operations including DRDGOLD increased by 4% and excluding DRDGOLD of R1,020 million (US$77 million) decreased by 7% to R8,305 million (US$580 million) mainly due to lower production.

Adjusted EBITDA

Adjusted EBITDA includes other cash costs, and care and maintenance. Care and maintenance at the Cooke operations for H2 2018 was R291 million (US$20 million) (H2 2017: R122 million (US$9 million)).

Adjusted EBITDA is shown in the graph below:

Amortisation and depreciation

Amortisation and depreciation increased by 10% to R3,519 million (US$248 million). This included US$86 million (R1,210 million) from the US PGM operations, which increased by 2% (8%) and R573 million (US$41 million) from the SA PGM operations, which increase by 32% as the useful lives of the individual assets were reassessed at 1 January 2018. Amortisation and depreciation at the SA gold operations including DRDGOLD increased by 5% and excluding DRDGOLD of R58 million (US$4 million) increased by 2%.

Finance expense

The finance expense increased to R1,751 million (US$124 million) from R1,532 million (US$114 million). The increase was primarily due to accelerated unwinding of the 6.125% Notes due on 27 June 2022 (the 2022 Notes), 7.125% Notes due on 27 June 2025 (the 2025 Notes) and the US$ Convertible Bond, and unwinding of the deferred revenue related to the streaming transaction.

Sibanye-Stillwater’s average outstanding gross debt, excluding the Burnstone Debt, was approximately R25.1 billion during H2 2018 compared with approximately R26.9 billion during H2 2017. The gross borrowings, excluding the Burnstone Debt decreased from R26.9 billion at 30 June 2018 to R23.4 billion at 31 December 2018 mainly due to the repurchase of a portion of the 2022 and 2025 Notes and US$ Convertible Bond. For additional information on Sibanye-Stillwater’s borrowings see note 10 of the financial statements.

Gain/loss on financial instruments

The net gain on financial instruments of R994 million (US$71 million) for H2 2018 compared with a net loss of R853 million (US$64 million) for H2 2017. This net gain included gains on the revised cash flows of the Burnstone Debt of R805 million (US$57 million), and share-based payment (on BEE transaction obligation) of R272 million (US$19 million) and revised cash flows of the Deferred Payment of R151 million (US$11 million) (related to the Rustenburg operations acquisition). These gains were partly offset by fair value losses on the derivative financial instrument of R132 million (US$9 million) and rand gold forward sale contracts of R89 million (US$6 million)

Gain on foreign exchange differences

The net gain on foreign exchange differences of R959 million (US$71 million) for H2 2018 compared with a net loss of R42 million (US$3 million) for H2 2017. The net gain was mainly due to foreign exchange gains on financial assets as the closing exchange rate at 31 December 2018 of R14.35/US$ was 16% weaker than R12.36/US$ at 31 December 2017.

Non-underlying items

Impairments

Ongoing losses experienced at the Driefontein and Beatrix operations negatively affected Group cash flow as well as the sustainability and economic viability of other operations in the SA region. As a result a decision was taken at 31 December 2018, to impair the Driefontein and Beatrix mining assets by R2,172 million and R167 million, respectively, and the goodwill allocated to the SA gold operations by R436 million. In addition, development of the Burnstone project is deferred and as a result a decision was taken at 31 December 2018 to impair the Burnstone development assets by R194 million.

Gain on derecognition of borrowings and derivative financial instrument

On 5 September 2018, Sibanye-Stillwater concluded the US$ Convertible Bond tender process. An aggregate principal amount of US$66 million for a total purchase price of approximately US$50 million was repurchased. Sibanye-Stillwater funded the repurchase from existing cash resources, including the US$500 million advance proceeds of the streaming transaction with Wheaton Precious Metals International Limited. On 16 September 2018, Sibanye-Stillwater concluded the 2022 and 2025 Notes tender process. The total purchase price was approximately US$345 million (with a nominal value of US$349 million) and was also funded from existing cash resources, including the US$500 million advance proceeds of the streaming transaction.

As a result, a gain on early settlement of the borrowings of R230 million (US$17 million) was recognised in profit or loss.

Mining and income tax

The mining and income tax charge of R999 million (US$75 million) for H2 2018 compares with the credit of R2,532 million (US$190 million) for H2 2017 due to a significant deferred tax adjustments recognised in the periods. During H2 2018, the New Jersey Governor signed a number of bills that implement numerous tax changes which affected the US PGM operations. The most significant change in the law resulted in tax being calculated together on all US entities under common control (greater than 50% voting ownership). This resulted in an increase in the estimated deferred tax rate relating to the US PGM operations and a deferred tax charge of R1,545 million (US$108 million). The deferred tax credit for H2 2017 was mainly due to the impact of the federal tax reform legislation enacted in the US on 22 December 2018. From 1 January 2018, the federal corporate income tax rate reduced from 35% to 21%, which, together with other immaterial changes in tax base, resulted in a decrease of R2,532 million (US$205 million) in the US PGM operations’ net deferred tax liabilities and a corresponding deferred tax benefit in H2 2017.

Liquidity and capital resources

Free cash flow

Sibanye-Stillwater defines free cash flow as net cash from operating activities, before dividends paid, net interest paid and deferred revenue advance received, less additions to property, plant and equipment.

After net interest paid of R676 million (US$47 million), net other investing activities of R699 million (US$50 million) and net loans repaid of R4,702 million (US$359 million), cash at 31 December 2018 increased to R2,549 million (US$178 million) from R2,100 million (US$153 million) at 30 June 2018.

Mineral resources and mineral Reserves

On 20 February 2019, Sibanye-Stillwater reported an updated of its Mineral Resources and Mineral Reserves at 31 December 2018.

–­         Total group PGM Mineral Reserves increase by 4% from 44.261Moz to 46.062Moz, primarily due to ongoing reserve definition drilling at the Blitz Project at Stillwater, where approximately 3.294Moz of Mineral Reserves were added at a 2E PGM grade of 23.7g/t

–­         Total group PGM Mineral Resources were stable at 204.373Moz

–­         Total Mineral Reserves at the SA gold operations were 12.108Moz, a 9% year-on-year decline, primarily as a result of the restructuring of marginal operations (2.373Moz) and depletion (1.162Moz), partially offset by the successful conversion of Mineral Resources to Mineral Reserves at the Kloof operations (+1.204 Moz) and the inclusion of attributable (38.05%) DRDGOLD Mineral Reserves (2.245Moz) following the sale of certain the West Rand Tailings Retreatment Project (WRTRP)assets to DRDGOLD

–­         Total SA gold Project Mineral Reserves decreased by 64% to 4.476Moz primarily due to the sale of certain WRTRP Mineral Reserves to DRDGOLD and the decision to cease further development at the Driefontein Depth Extension Project as part of a rigorous capital and economic review of the SA gold operations

–­         Total gold Mineral Resources increased by 12.789 Moz to 104.221Moz primarily due to the inclusion of DRDGOLD Mineral Resources attributable to Sibanye-Stillwater

–­         Total group copper Mineral Resources increased marginally to 18,795.8Mlb (an increase of 0.7%), due to the inclusion of the attributable Rio Grande Project Mineral Resources, following the successful transaction with Regulus Resources Inc. and Aldebaran Resources Inc.

change in board of directors

Harry Kenyon-Slaney was appointed as an independent non-executive director with effect from 16 January 2019. Harry has over 34 years of experience in the mining industry, principally with Rio Tinto PLC. He is a geologist by training and his experience spans operations, marketing, projects and business development. Harry is currently non-executive chairman of Gem Diamonds Limited, a non-executive Director of Petropavlovsk plc and a senior advisor to McKinsey & Co. where he uses his wide experience to support operational, health and safety and business transformation programmes.

SALIENT FEATURES AND COST BENCHMARKS – SIX MONTHS

SA and US PGM operations

Average exchange rates for the six months ended 31 December 2018, 30 June 2018 and 31 December 2017 were R14.18/US$, R12.31/US$ and R13.41/US$, respectively

Figures may not add as they are rounded independently.

1   The US PGM operations’ underground production is converted to metric tonnes and kilograms, and performance is translated into SA rand. In addition to the US PGM operations’ underground production, the operation processes recycling material which is excluded from the statistics shown and is detailed in the PGM recycling table below.

2   Production per product – see prill split in the table below.

3   The Group and total SA PGM operations’ unit cost benchmarks exclude the financial results of Mimosa, which is equity accounted and excluded from revenue and cost of sales.

4   The average PGM basket price is the PGM revenue per 4E/2E ounce, prior to a purchase of concentrate adjustment.

5   Operating cost is the average cost of production and calculated by dividing the cost of sales, before amortisation and depreciation and change in inventory in a period by the tonnes milled/treated in the same period, and operating cost per kilogram (and ounce) is calculated by dividing the cost of sales, before amortisation and depreciation and change in inventory in a period by the gold produced in the same period.

6   Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by revenue.

7   All-in cost excludes income tax, costs associated with merger and acquisition activities, working capital, impairments, financing costs, one-time severance charges and items needed to normalise earnings. All-in cost is made up of All-in sustaining cost, being the cost to sustain current operations, given as a sub-total in the All-in cost calculation, together with corporate and major capital expenditure associated with growth. All-in sustaining cost per ounce (and kilogram) and All-in cost per ounce (and kilogram) are calculated by dividing the All-in sustaining cost and All-in cost, respectively, in a period by the total 4E/2E PGM production in the same period, For a reconciliation of cost of sales, before amortisation and depreciation to All-in cost, see “All-in costs – six months”.

The US region All-in cost, excluding the corporate project expenditure (on the Altar and Marathon projects), for the six months ended 31 December 2018, 30 June 2018 and 31 December 2017 was US$912/2Eoz, US$822/2Eoz and US$845/2Eoz, respectively

8   The US region corporate project expenditure for the six months ended 31 December 2018, 30 June 2018 and 31 December 2017 was R13.0 million (US$0.9 million), R58.1 million (US$4.8 million) and R30.4 million (US$2.3 million), respectively, which related to the Altar and Marathon projects.

SA gold operations