Neal "the deal" Froneman is having a helluva year

Neal Froneman seems laid-back but he's a man in a hurry. The CEO of Sibanye-Stillwater, the largest primary producer of platinum, second-largest primary producer of palladium and a top-tier gold producer, is driving the precious metals giant into the green energy metal space at a pace that makes your head spin.

The South African mechanical engineer has orchestrated four major acquisitions of cobalt, copper, lithium and nickel assets so far this year - the latest an eye-watering US$1 billion deal to buy the Santa Rita nickel mine and the Serrote copper mine in Brazil from Appian Capital (see story on page 1). Santa Rita is one of the largest nickel-cobalt sulphide open pit mines in the world and Serrote is a producing open pit copper mine.

The deal with Appian Capital unveiled on October 26 follows Sibanye's US$490 million investment in mid-September for a 50% stake in the Rhyolite Ridge lithium-boron project in Nevada; a transaction in July to buy 100% of the Sandouville nickel hydrometallurgical processing facility in Normandy, France for ?,?65 million (US$76 million); and its February investment of ?,?40 million (US$47 million) in the Keliber lithium project in Finland.

The Rhyolite Ridge project it owns with joint-venture partner ioneer Ltd., is one of the first large-scale lithium projects in the United States, and is expected to move into production in the second half of 2024. The Sandouville facility, which includes a hydrometallurgical nickel refinery, has a production capacity of 12,000 tonnes per year of high-purity metal, 4,000 tonnes per year of high-purity nickel salts and solutions and around 600 tonnes a year of cobalt chloride. The Keliber project in Finland, is expected to start producing about 15,000 tonnes of battery grade lithium hydroxide a year over a mine life of about thirteen years. (The project includes the development of a chemical plant in Kokkola, 50 km from the where the mine will be built.)

The Santa Rita nickel-cobalt mine in Brazil's northeastern state of Bahia. (Image courtesy of Atlantic Nickel.)

Froneman explained the thinking behind the string of acquisitions and the company's green energy metals strategy on a recent webcast. Dressed casually in a plaid shirt and introducing himself as the company's CEO but noting he preferred to be known as the 'Chief Enabling Officer,' Froneman emphasized the importance of developing "a climate change resilient" business. "Core to our strategy is embedding ESG excellence as the way we do business and that's evolved into a sustainability strategy and coming out of that sustainability strategy is really the strategic focus area of building an operating portfolio of green metals and related technologies," Froneman said.

At the same time, the CEO emphasized that the pivot towards battery metals was not a reflection of Sibanye's view on PGMs. "There's no doubt there's strong demand for both battery metals and PGMs and again, I'm going to say it a few times, please do not read our entry into battery metals as having lost confidence in PGMs," he said, adding that Sibanye sees very little change in PGM demand out until at least 2030.

What he does see is "significant penetration rates" by battery electric vehicles (BEVs), and fuel cell EVs becoming more of the demand post-2030. "We believe most assumptions on BEV penetration rates are understated and that will become evident when you look at the deficits in the metals that are required to achieve that. So we remain very confident in our very substantial PGM business, but we're building a value proposition in getting exposure to the battery metals as well."

Turning to the latest acquisitions, Froneman noted that the upfront cash payment of US$1 billion includes debt and the life of mine 5% NSR royalty is only expected to be payable if and when underground production begins at Santa Rita.

Describing Santa Rita as a "top ten nickel sulphide asset," Froneman noted that it is in the first quartile cost production with a seven-year mine life, with potentially 27 years of underground extensions. Serrote is also in the lower quartile of cost producers, has a 13-year mine life and also has potential for mine life extensions. In addition, 85% of the energy at Santa Rita is hydro-powered, and both assets enjoy "first quartile carbon emissions."

An aerial view of the Santa Rita nickel-copper-cobalt mine in northeastern Brazil. Credit: Atlantic Nickel.

Looking at value creation, he said, while everyone knows what Appian paid for Santa Rita and what it spent on the asset, the sum, in his view, is unimportant. (Appian acquired Atlantic Nickel, the owner of Santa Rita, out of bankruptcy in 2018 for US$68 million, and spent US$50 million redesigning the mine and restarting operations in 2020.) "To me that's irrelevant," Froneman said. "What's relevant is, what is the value of these assets in our hands, and I can assure you on conservative commodity price assumptions they more than meet our hurdle rate."

"It's an attractive entry point in the commodity cycle," he continued. "We may think that copper and nickel prices are relatively high, as I've shown you we are working towards very substantial deficits and I suspect it will be difficult to bring on supply to offset these deficits, so we expect a positive price reaction. Both assets will contribute very substantially to free cash flow at current commodity prices, so they are value accretive from day one."

In terms of upside, the mining executive pointed to the underground extension at Santa Rita, which once the company has done the engineering and "as long as it stacks up," will extend the mine life by nearly three decades. In addition, there's resource potential and regional exploration opportunities at both assets, and at Serrote, further debottlenecking in the system and at the plant can be made.

"Just to reinforce the fact that these were acquired at an attractive entry point from a value point of view," he said, "we've looked at multiples, enterprise value based on 2022 EBITDA multiples as an example, you can see the acquisition multiple is well below nickel peers, it's below the copper peers as well. If you look at P/NAV multiples, again, the acquisition multiple is well below some recent acquisitions and peer comparisons."

Concluded Froneman: "We are absolutely elated with the fact that we have been able to acquire these assets that exceed our hurdle rate in terms of our measurements, but when we stack them up against the market peers, we are also very happy with our acquisition."