SIBANYE GOLD LIMITED - Sibanye-Stillwater strategic and operational update

Sibanye-Stillwater strategic and operational update

Sibanye Gold Limited
Trading as Sibanye-Stillwater
Incorporated in the Republic of South Africa
Registration number 2002/031431/06
Share code: SGL
ISIN – ZAE000173951
Issuer code: SGL
(“Sibanye-Stillwater” or “the Group” or “the Company”)

Sibanye-Stillwater strategic and operational update

Salient points:

 -   Sibanye-Stillwater’s transformative growth that has made it one of the
     largest PGM producers in the world at a low point in the PGM commodity price
     cycle, has resulted in a significant, but temporary, change in its capital
     structure
 -   The Group is pursuing its deleveraging strategy, and Group liquidity remains
     sound
 -    The Group debt maturity profile has been carefully structured, with major
     debt repayments only due from mid-2022
 -   Various financial options which, will accelerate the deleveraging are being
     assessed, with a decision on these expected soon
 -   The SA and US PGM operations continue to perform well, and the recent
     regression in safety at the SA Gold operations is being addressed with
     initiatives to reduce costs across the SA region being implemented
 -   The proposed acquisition of Lonmin is proceeding as planned. Sibanye-
     Stillwater remains convinced by the compelling strategic rationale of this
     transaction.

The board and management of Sibanye-Stillwater (Tickers JSE: SGL and NYSE: SBGL) has
noted with concern the significant drop in the Group’s share price and market value,
which has accelerated in recent weeks. Management believes that this uncertainty is
unwarranted and primarily driven by the concerns around high balance sheet leverage,
the recent safety incidents and associated operational disruptions and concerns
regarding the viability of the Lonmin transaction.       This update is intended to
address these issues. This release should be read together with the Q1 2018 operating
update, which was released on 3 May 2018 (Q1 Operating update).

Debt and leverage

Prior to the acquisition of Stillwater in 2017, Sibanye-Stillwater’s debt was
negligible, and its leverage in 2015 at 0.2x Net Debt:adjusted EBITDA*, was
significantly lower than its global mining peers. This robust financial position
enabled the Group to conclude a number of value accretive acquisitions in the
Platinum Group Metals (PGM) sector, at a low point in the commodity price cycle.
The bridge loan raised to settle the Stillwater transaction was refinanced through
a combination of equity (US$1 billion rights issue), corporate debt (two tranches
totalling US$1.05 billion) and a US$450 million convertible instrument. This
resulted in Group Net Debt:adjusted EBITDA of 2.6x at 31 December 2017.

As per the Q1 Operating update: “Due largely to the inclusion of the US PGM
operations, Net Debt: adjusted EBITDA of 2.4x at 31 March 2018, was 8% lower than
at 31 December 2017. This is well below prevailing covenant levels of 3.5x, as
well as below longer term covenant levels of 2.5x.”

This outcome, was achieved despite the negative impact of a significantly stronger
ZAR, and operational disruptions at the SA operations during Q1 2018.

Furthermore, the Group debt maturity profile has been carefully structured, with
the first maturity of our bond instruments (High yield bonds and Convertible
bonds) in mid-2022.

The Group liquidity position was recently enhanced by the refinancing of the
US$350 million Revolving Credit Facility (RCF), which was due to mature in August
2018. A larger US$600 million facility, maturing in 2021, was provided by lenders
on improved terms, which we believe reflects the confidence that lenders have in
Sibanye-Stillwater’s strategy, deleveraging profile and financial outlook. Should
it wish to do so, the Group also has the option to increase the size of the US$
RCF by a further US$150 million (to US$750 million), through the inclusion of
additional lenders.

The opportunity to accelerate the deleveraging of the company, to our targeted
level of 1x Net Debt:adjusted EBITDA remains of strategic importance to management
and the Board, and will provide the necessary flexibility to continue to deliver
on our longer term strategic objectives.   As stated in the recent Q1 Operating
update, we have for some time been evaluating the commercial merits of a number of
non-debt or non-recourse financial options to achieve this. These evaluations are
at an advanced stage and while no formal decision has been made, the most
prospective options include:

  -   Raising up to US$500 million via a streaming arrangement, at competitive
      financing costs relative to alternative financing instruments.
  -   The financing of recycling inventory in process at our US operations. This
      could potentially facilitate the release of approximately US$100 million of
      working capital.


A final decision regarding these financial options will be announced shortly.
The Group has no intention to issue equity in order to reduce debt. Even under
significantly more challenging circumstances, this remains an unlikely scenario.

Safety update
Sibanye-Stillwater is committed to ensuring a safe working environment for
employees. The roll out of a new safety strategy in 2017, following a complete
revision of the safety strategy in 2016, resulted in significant improvements in
all safety indicators across the SA region in H2 2017. The recent spate of serious
safety incidents, since February 2018 is therefore of significant concern to
Sibanye-Stillwater’s board and management.

As highlighted at the presentation of our 2017 operating and financial results on
22 February 2018, industry investigations reveal that in recent years, a
significant number of fatalities are the result of non-compliance to procedures
and standards, for which employees are trained. It has therefore become
increasingly evident that our journey to zero harm will require a significant
change in employee behaviour. With many employees being members of organised
labour it is clear that the changes in attitude will require the support and
assistance of key stakeholders, specifically organised labour.

In this regard, Sibanye-Stillwater convened a safety summit on 25 May 2018, which
was well attended by all material stakeholders, including all the representative
unions and the Department of Mineral Resources (the DMR). The stakeholder
representatives adopted a constructive approach at the summit, which was
heartening to note and management believes that, should this cooperative approach
continue, significant inroads will be made to achieving a safer work environment.
A follow up workshop has been scheduled in three weeks’ time, at which critical
initiatives from the perspectives tabled at the initial safety summit will be
identified.

Operating update
The SA and US PGM operations continue to deliver consistent operating results,
maintaining their solid first quarter operational performances. The SA gold
operations have however, experienced safety related stoppages which have again
impacted on production.

The tragic seismic event at our Masakhane mine on 3 May 2018, resulted in the
temporary suspension of production at our Kloof and Driefontein operations while
rescue efforts were underway. Following the conclusion of the rescue efforts on 5
May 2018, production resumed at Kloof and all Driefontein shafts, other than at
Masakhane. The direct impact on production from the tragic seismic incident, was
approximately 160 kg (5,240oz) as at 5 May 2018, which is approximately 0.4% of
total guided group gold production of between 38,500kg and 40,000kg (1.24Moz and
1.29Moz) for the year ending 31 December 2018.

Operations at Masakhane remain suspended, pending a thorough assessment of the
recent seismic damage caused to the mine. Damage to footwall infrastructure which
provides access to the western side of the Masakhane mine has been identified, and
is being assessed and updates will be provided once management has completed plans
to repair the damaged footwall infrastructure. Masakhane produces approximately
11kg (935oz) of gold per day, which represents approximately 20% of Driefontein’s
total daily output and 7% of the daily gold output at the SA gold operations.
Further information will be provided as the repair plans to Masakhane shaft are
finalised.

As per the Q1 Operating Update, an operational review to cater for a sustained
strong ZAR environment is underway across Group operations. Approximately R1
billion in potential cost reductions have been identified and are currently being
implemented.

The proposed Lonmin transaction

The proposed acquisition of Lonmin Plc (Lonmin) is proceeding according to plan,
with submissions to both the South African and United Kingdom competition
authorities made in March and April 2018 respectively.
Lonmin released its H1 2018 results on 14 March 2018, which, after normalising for
smelter lock up of US$47 million (which is expected to be released in H2 2018),
were largely in line with our expectations and included reiteration of the
company's full financial year guidance for annual sales and unit costs. The
planned restructuring by Lonmin of its higher cost Generation 1 shafts, which have
reached the end of their reserve lives, has commenced. This will facilitate a
reduction in unit operating costs across the Lonmin operations. The realisation of
approximately R730 million of overhead cost synergies identified by Sibanye-
Stillwater, over 3 years**, will further reduce operating costs, enhancing the
sustainability of the Lonmin operations, and as a result, Lonmin is expected to
contribute positively to Group EBITDA. In 2017, Sibanye-Stillwater successfully
integrated the Rustenburg operations, which delivered synergies of more than R1
billion within 14 months, well ahead of initial expectation of R800 million
synergies in three to four years. The realisation of approximately R780 million of
annual processing synergies from 2021, are expected to further reduce costs and
enhance the sustainability, underpinning the value proposition offered by the
acquisition of Lonmin

Sibanye-Stillwater therefore remains confident of the rationale for the
transaction:

   -   Sibanye-Stillwater will acquire a fully integrated PGM company with a
       downstream processing business which has a replacement value significantly
       higher than the acquisition cost
   -   The proposed transaction is Net asset value (NAV) accretive on closing and
       earnings and cash flow accretive on a per share basis from 2021
   -   The all share offer ensures that the transaction does not add to Group debt
       or leverage.
   -   Enhanced scale facilitates greater operational flexibility, optimal use of
       excess capacity and more effective allocation of capital
   -   Detailed due diligence identified significant synergies between Sibanye-
       Stillwater and Lonmin’s contiguous PGM assets amounting to approximately R1.5
       billion per annum by 2021
   -   Sibanye-Stillwater’s confidence in achieving these synergies is supported by
       the successful integration of the Rustenburg operations and Aquarius assets,
       and value created through the realization of over R1 billion in cost and
       operational synergies in 2017
We remain excited about the opportunity to close this transaction, which is
compelling from a strategic and a value perspective.

* The Group reports adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA)
based on the definitions in Sibanye-Stillwater’s revolving credit facility agreements. Adjusted EBITDA
is a pro forma number for JSE Listings Requirements purposes. It not an IFRS measure and is for
illustrative purposes only and is the responsibility of the directors. For a reconciliation of the
components of Adjusted Ebitda, please refer to note 24.10 on page 89 of the 2017 Group Annual Financial
Statements   available   at   https://www.sibanyestillwater.com/investors/financial-reporting/annual-
reports/2017. Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by revenue

**For further information in relation to the expected synergies, please refer to page 17 and pages 58
to    60    of    the    offer    announcement    dated    14    December    2017,    available    on
https://www.sibanyestillwater.com/investors/transactions/lonmin/documents.

Investor relations contact:
James Wellsted
Head of Investor Relations
+27 (0) 83 453 4014
Email: ir@sibanyestillwater.com

Sponsor: J.P. Morgan Equities South Africa Proprietary Limited

Johannesburg, 31 May 2018

FORWARD LOOKING STATEMENTS
This   announcement   contains   forward-looking   statements,    including   “forward-looking
statements” within the meaning of Section 27A of the U.S. Securities Act of 1933 and the
“safe harbour” provisions of the United States Private Securities Litigation Reform Act of
1995. Forward-looking statements may be identified by the use of words such as “target”,
“will”, “would”, “expect”, “can”, “unlikely”, “could” and other similar expressions that
predict or indicate future events or trends or that are not statements of historical matters.
These forward-looking statements, including among others, those relating to our future
business prospects, financial positions, debt position and our ability to reduce debt
leverage, plans and objectives of management for future operations, plans to raise capital
through streaming arrangements or pipeline financing, our ability to service our Bond
Instruments (High Yield Bonds and Convertible Bonds), our ability to achieve steady state
production at the Blitz project and the anticipated benefits and synergies of our acquisitions
are necessarily estimates reflecting the best judgement of our senior management and involve
a number of known and unknown risks, uncertainties and other factors, many of which are
difficult to predict and generally beyond the control of Sibanye-Stillwater, that could cause
Sibanye-Stillwater’s actual results and outcomes to be materially different from historical
results or from any future results expressed or implied by such forward-looking statements.
As a consequence, these forward-looking statements should be considered in light of various
important factors, including those set forth in the Group’s Annual Integrated Report and
Annual Financial Report, published on 2 April 2018, and the Group’s Annual Report on Form
20-F filed by Sibanye-Stillwater with the Securities and Exchange Commission on 2 April 2018
(SEC File no. 001-35785). These forward-looking statements speak only as of the date of this
announcement. Sibanye-Stillwater undertakes no obligation to update publicly or release any
revisions to these forward-looking statements to reflect events or circumstances after the
date of this announcement or to reflect the occurrence of unanticipated events, save as
required by applicable law.

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