The change in the withholding tax position introduced in last week’s Budget may result in precious metals mining company Sibanye changing its stance on dividends.

Up to now, Sibanye’s first call on free cash after stay-in-business capital expenditure has been to pay dividends amounting to at least 35% of normalised earnings.

But now that the withholding tax rate has been raised from 15% to 20% in the latest Budget, that stance may need to be reconsidered, Sibanye CEO Neal Froneman said last week, when the Johannesburg- and New York-listed company declared a final dividend of 60c a share, amounting to R560-million, taking the total dividend for the year ended December 31 to 145c a share, equivalent to 37% of normalised earnings.

The Chamber of Mines of South Africa described the increase in the dividend with­holding tax rate from 15% to 20% as being a “potentially worrisome” feature of the Budget’s revenue-enhancing measures.

The chamber made the point that the com­bination of company tax and the divi­dend withholding tax raised the overall tax rate to above the Organisation for Economic Cooperation and Development average and warned of its potential negative impacts on investment.

“After yesterday, seeing a 33% increase in withholding tax means that we do need to rethink our dividend policy. I’m not sure that our shareholders are going to get the benefit of a dividend with a 20% withholding tax.

“That’s something new. Let us reconsider it. We’ve had brief discussions on it and it may change our view,” Froneman said in response to Standard Bank Group Securities mining analyst Adrian Hammond.

Precious metals mining company Sibanye, which last week reported a record operating profit of R10.5-billion for the six months and year ended December 31, 2016, a 60% increase on the previous year, is currently also having to reconsider its capital expen­di­ture allocations as a result of the strengthen­ing South African rand.

With the final dividend of 60c a share, amounting to R560-million for the 12 months to December 31, Froneman noted that the company was providing an industry-leading dividend yield of over 5% to shareholders.