Gold Miner Enters into a Prepayment Deal with Citigroup

Sibanye Gold Ltd. raised $125 million by selling future gold production, the second major step by the company this week to build up cash as it faces a drawn-out labor dispute.

In exchange for the cash, South Africa’s largest gold miner will deliver about 106,000 ounces of gold to Citigroup Inc., it said Thursday. That comes after the company this week sold about $120 million of new shares.

Key Insights

Sibanye is building up a war chest as it faces an intensifying conflict with one of South Africa’s most militant labor unions. A four-month-old wage strike by members of the Association of Mineworkers and Construction Union has slashed output at its South African gold mines.

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“The gold prepayment, in addition to the share placing announced earlier this week, are both strategic and preemptive levers to enhance our balance sheet flexibility and ensure that the group is appropriately positioned and sufficiently robust,” said Chief Executive Officer Neal Froneman.

The platinum industry is also preparing for tough wage negotiations this year, and South Africa’s mining sector has a history of lengthy and sometimes violent protests.

Market Reaction

✅ Swapping cash for future metals output is more favorable than this week’s dilutive share sale, the analysts said. Still, while it helps beef up Sibanye’s liquidity, its cash position faces mounting risks from labor disputes which are likely to spill into platinum mines, they said.

Sibanye shares fell 0.6 percent to 13.92 rand on Thursday, extending yesterday’s 18 percent plunge after the equity sale.

✅ The company’s free cash flow may have been marginally negative after a poor performance in the first quarter, Morgan Stanley analysts said in a note.

Gold Miner Enters into a Prepayment Deal with Citigroup via @goldsilverrepor
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