Sibanye Gold CFO Charl Keyter talks risks and results

Charl Keyter was first introduced to mining as a child, when he used to visit the Gold Fields operations with his dad’s cousin. He was fascinated. “The atmosphere on the mines in those days was almost holiday-like,” he recalls. “Maybe because we only ever spent a day or a week there, every so often, but the facilities and the people living in the community, the activities they did with the kids, there was always this great atmosphere.”

By Toni Muir

Having spent his entire 21-year-long career in the mining sector, first scaling the ladder at Gold Fields and now as CFO at Sibanye Gold, Charl, a Chartered Global Management Accountant (CGMA), has gained nearly unrivalled insight into the inner workings of this often-unpredictable industry. CFO South Africa spoke to him about his journey.

“For a CFO, the mining space is unique in the sense that, if you compare it to manufacturing, for example, the CFO gets up in the morning, goes to his office – which is probably close to the manufacturing facility – and just spends a normal day there. Not so in the mining space. Because it’s almost like a mini community, you deal with a lot of things.”

“We employ approximately 55,000 employees and with the pending Rustenburg acquisition this will increase to over 70,000 employees. On a daily basis we house approximately 21,000 employees in 6,000 company owned and managed houses and single accommodation units and we provide meals to approximately 13,000 employees who stay in these single accommodation units. So in addition to operating a large number of shafts, metallurgical facilities and other engineering infrastructure, and providing safe employment to thousands of people, we also have to manage property portfolios, training facilities and healthcare facilities – those are some of the challenges we deal with that people outside the mining industry don’t necessarily encounter. Each of these activities has its own challenges and we need to ensure proper governance. So it’s almost a microcosm, compared to other sectors.”

Since it was unbundled by Gold Fields in early 2013, Sibanye Gold has enjoyed a rapid rise to success in a very short space of time, becoming one of the most dynamic mining companies in the country. It is the largest individual producer of gold from South Africa and one of ten largest gold producers globally. A JSE and NYSE-listed entity, Sibanye Gold has a current market capitalisation of R63 billion, significantly larger than when it listed with a market capitalisation of about R11 billion.

“Sibanye Gold has gone from ugly duckling to swan,” says Charl, quickly emphasising that the company is careful not to become complacent. The CFO says the single biggest factor influencing the company’s financial performance is the gold price. To counter this, they plan conservatively, he says. “The gold price year to date has averaged above R600,000 per kilogram. Last year the average was R475,000 per kilogram, but the operational plan for 2016 was planned at R450,000 per kilogram, which includes a margin. Shareholders don’t like us to hedge the gold price because it reduces potential upside if the gold price rises and it is something they prefer to do themselves. We have other ways to deal with the cyclical nature of our business. For example, we can shut down some low grade shafts and remain profitable.”

For Charl, the reasons behind Sibanye’s success are two-fold: “Under the CEO Neal Froneman’s guidance we brought in new management. Neal’s message was, let’s throw out the bad and the ugly elements we encountered in the business and take the best that we have and build on that. A large element of our success was that we were willing to do things differently and make the difficult decisions. Equally, if you look at how middle management and our employees have benefitted: Gold Fields had made a strategic decision to diversify internationally and to limit exposure to South African labour-intensive gold mines. Sibanye turned the operations around and basically restored life to these assets, and is now investing in growth projects. So instead of a closure or exit scenario we had a long life growth scenario and a lot of employees have bought into that and are more motivated.”

The first thing management did after the company was unbundled was to look within, introspectively and critically – something that is never easy, says Charl. One of the first problems identified pertained to staffing – overstaffing specifically – and in the first year the 42,000-strong staff contingent was reduced by 7,000, to more sustainable levels. This reduced costs and resulted in more profitable but more importantly, sustainable operations which could provide employment over a longer period.

“Our investment strategy is underpinned by our commitment to pay industry-leading dividends, so by reducing the costs and becoming more profitable and extending the lives of these assets, we managed to secure our ability to pay those dividends."

There was also a lot of work that needed to be done to generate interest from international investors. As far as they were concerned, South African gold mining was a risky investment. “We managed to convince them we could sustain decent cash flows and could pay industry-leading dividends, and they accepted this and that’s why many international investors stuck with us,” Charl says. “We also started out with a chunky bit of debt in our first year – R4.2 billion. One of first things I discussed with management was decreasing this. In the first year we got it down to R2 billion, which gave us a stable profile from which to operate.”

With this attended to, the company began looking to acquisitions, the feeling being that, given where the commodities cycles were, the timing was appropriate. The first acquisition was the Cooke asset, which was closely followed up by the acquisition of Wits Gold. The team then cast its eye wider, changing the focus from asset acquisition to rather target company level acquisitions, where they saw opportunity for synergies. They began looking at the platinum space.

“We had casual conversations with most of the platinum players in South Africa in early 2014, though they indicated there were no deals to be done at that stage in time. We did a lot of research as far as platinum prices and fundamentals went, agreeing that in the medium term there would be a recovery in platinum prices, so we started to intensify our talks with some of the platinum companies.”

In September 2015, Sibanye put in an offer to acquire Anglo American Platinum’s Rustenburg assets, and made an offer to Aquarius Platinum shareholders, who went on to accept their offer. “Between these two operations our aim is to leverage up to R1 billion of synergies over a four-year period. The Aquarius transaction was concluded in April 2016, and at a high level we can already see some of those synergies flowing through. So the business case for acquiring those is still valid,” Charl says.

Speaking to the role of the finance team in all of this, Charl says with the Cooke transaction, the team was actively involved in the due diligence process. “Neal drives it hard from a CEO level, but ultimately these things play out in the finance space,” he says.

“Because we have defined ourselves as a dividend-paying company, I sometimes have to remind management that the dividend is always first and that any acquisition we do will have to sustain the dividend profile. We won’t easily get involved in early-stage, capital-intensive projects, as it takes cash away from the business. So one of my main roles has been as gate keeper on the dividend-paying side.”

Strategic decision-making is made as a team by the executives and according to Charl, is a fully inclusive process, with a lot of value attached to individuals’ opinions. “Neal runs a pretty inclusive ship. It’s not a case of everybody’s opinion matters but the relevant ones do. In the early days we got together and decided where to start, and laid out an operations strategy. This wasn’t the ultimate strategy for the company, as we first had to plug the holes in the boat before we could sit and plot the course to where we would ultimately like to sail, but once we’d gone through that tough process upfront we talked about where we wanted to take the company."

"We decided our strategy was to create superior value for shareholders and all other stakeholders. We cannot survive in the long term without any of them, including our communities.”

South Africa’s mining sector can be a volatile space, rocked by wage disputes, legislative ambiguity and fluctuating commodities prices, but Charl thinks there is still good business to be done. Sibanye Gold is now not only looking at platinum, but also at energy, including coal and possibly beyond. “Where a lot of guys have almost thrown in the towel, saying it’s too tough to operate here, we see a lot of opportunity in South Africa and that inspires us. We see it in both the gold and platinum sectors. We don’t have specific global aspirations. While we might diversify into Sub-Saharan Africa, the majority of our operations will always be in South Africa. We are here to stay.”

Right: Charl with Telkom's Deon Fredericks

The hospital conundrum

We asked Charl Keyter what his toughest decision has been during his tenure as CFO at Sibanye Gold. His answer is surprising: selling hospitals.

“For years Gold Fields wanted to sell its hospitals. When the industry at its peak employed 500,000 people it made sense for the gold producers to have hospitals, but as production and employment dropped, it didn’t make sense anymore. Our healthcare strategy at Sibanye is to provide better care closer to the workplace and owning hospitals did not fit into this model. The discussion previously had been pursued until there was pushback from the unions, and the producers backed down, understanding that healthcare is a highly emotive issue. However, we knew at Sibanye that our new healthcare strategy was the right decision and after careful consideration I decided this was the time and we sold the hospitals in 2014.”

“Our new strategy is to have clinics on the shaft heads, where a broad range of ailments and illnesses can be treated and simple medical care administered. For serious cases we use a referral model. That means we can take our people to the best hospitals, with helicopters if necessary. We don’t hesitate to airlift someone when needed to the best hospitals for the specific treatment required. We have literally saved many lives this way and some of the noteworthy cases have made newspaper headlines.”

"There were some accidents which in the past could have led to a fatality but the fact that medical care is now closer to the business and that the decision now is which hospital or medical facility is the best for the particular situation ultimately results in better decision making. Because of the clinic at the shaft much less people miss work for medical reasons, they can now go to the clinic before or after their shift. The healthcare costs in today’s money reduced from R400 million to R285 million, but this was not even the main reason to do it. It is about sustainability.”

“The biggest risk to the whole process was industrial action by the unions. understandably so as we had to part ways with people who were employed by us at the hospitals, some 400 in total. But we ultimately pushed it through despite being threatened with strikes. The closure was handled by a small team that I led. There were no strikes in the end and it was a fairly smooth process. In our conversation with the unions we are always straightforward and never plead poverty – and we also always make sure we have a direct line of communication with our employees. As a business, we need to do the right things. And the right thing for the shareholder and the employees is the same in the end.”

This article first appeared in CFO Magazine.