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Can Sibanye Achieve Its Cost Guidance for 2016?

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Gold production

Sibanye Gold’s (SBGL) gold production in 1Q16 was 360,800 ounces, which is 14% higher compared to the same quarter last year. However, 1Q15 was impacted by a number of one-off events such as an underground fire, a conveyor belt failure, union conflicts, and plant accidents.

Sibanye’s 1Q16 production declined by 12% quarter-over-quarter. The sequential lower production was mainly due to the Christmas and early Easter breaks.

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The company achieved a record rand gold price of 600,267 rands per kilogram (or kg), up by 19% year-over-year (or YoY). Higher gold prices offset Sibanye’s sequentially lower production such that its operating profit increased by 240% YoY to 2.5 billion rand. The company’s operating margin for the quarter was 38%.

Gold production outlook maintained

Sibanye (SBGL) maintained its gold production outlook for 2016 at 1.6 million ounces. It also maintained its cost guidance at $735 per ounce for total cash cost, $880 per ounce for all-in sustaining costs, and $915 per ounce for all-in costs.

Downside to cost guidance?

The cost guidance is based on an exchange rate assumption of 15 rand to $1.00. While the average exchange rate for 1Q16 was ~15.8 rand to $1.00 as of April 25, 2016, the spot exchange rate was close to 14.5 rand to $1.00.

Also, Sibanye has increased the basic pay for some of its workers to avert a strike by the AMCU (Association of Mineworkers and Construction Union). This input cost increase might put the company’s cost guidance under pressure if the rand does not depreciate further.

Among Sibanye’s peers (GDX), Harmony Gold (HMY), Gold Fields (GFI), and AngloGold Ashanti (AU) are also benefiting from weaker rand prices.

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