JOHANNESBURG (miningweekly.com) – Despite several production disruptions and a slow start-up in January following the Christmas break, dual-listed Sibanye Gold has reported a 36% increase in total production, from 220 000 oz in the December 2012 quarter, to 299 400 oz in the March 2013 quarter.

While production trends over the quarter were positive, with notable improvements at Kloof and Driefontein, Beatrix remained a concern, with the operation negatively impacted by high costs, low flexibility and lower-than-planned underground grades.

Operating challenges at Beatrix were compounded by the start of an underground fire at the Beatrix West Section on February 19, which resulted in the loss of some 3 215 oz of production.

The area affected by the fire remained closed and, as a result, the company reported 1 961 oz of lost gold production a month.

JSE- and NYSE-listed Sibanye confirmed that the future viability of this shaft was in doubt, following its initiation of a formal Section 189 process to review alternatives to closure with regulators and organised labour. 

Meanwhile, at Driefontein, a power outage owing to a lightning strike and subsequent transformer fire at an Eskom substation on March 13, resulted in some 9 484 oz of lost production.

CEO Neal Froneman said he was encouraged by good production and financial results, despite the challenges presented during the period.

“Even in a seasonally difficult quarter, which was impacted by significant, unanticipated operational disruptions, Sibanye was able to generate a R1.52-billion operating profit, and free cash flow of R590-million,” he commented.

This was an increase of 121% quarter-on-quarter.   

“Kloof and Driefontein, which will in future be separately reported, continued to improve through the quarter, with Driefontein, in particular, recovering strongly from the strikes and fire at its Ya Rona shaft in 2012,” he said, adding that, between them, Kloof and Driefontein were responsible for 89% of group operating profit.

The company, meanwhile, realised a 22% quarter-on-quarter reduction in notional cash expenditure to R381 347/kg.

These results were achieved at an average gold price during the quarter of $1 645/oz at an exchange rate of R8.89 to the dollar.

Business Process Re-engineering
Following the announcement of the company’s business process re-engineering initiative, which targeted significant cost reductions over the next two years, the company had made “significant” progress in reviewing every aspect of the business.

The initial focus had been on reducing costs, which would lower the pay limits and enable the conversion of measured resources, which were, in many cases, predeveloped into reserves.

“This should enhance operational flexibility and either extend the life-of-mine or increase current production profiles,” Froneman said.

He added that costs had been reduced and organisational effectiveness improved by merging regional and corporate office structures and flattening operational management layers.

“The operational benefits of these initiatives should flow through during the June quarter with the cost benefits being visible from the September quarter onwards,” he commented. 

Outlook
Meanwhile, upcoming wage negotiations with organised labour were set to begin at the end of May, while the company believed that the increased profile of the Association of Mineworkers and Construction Union would add a new dimension to the negotiations.

Management said it remained uncertain as to how the wage negotiation process would proceed, but said it was “acutely aware” of the heightened risk of strike activity and, as such, had developed comprehensive strike plans to limit the impact of any potential strikes.

Looking ahead, group production for the June 2013 quarter was forecast to increase by 14% to about 340 000 oz, while, as a result of the increase in production and ongoing cost reduction initiatives, total cash costs were expected to be 5% lower than in the March 2013 quarter, at around $975/oz.

Full-year production was forecast at 1.29-million ounces.