Sibanye Gold - BNP Cadiz Initiating Report

7/28/2019 Sibanye Gold - BNP Cadiz Initiating Report

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PREPARED BY BNP PARIBAS SECURITIES ASIA

THIS MATERIAL HAS BEEN APPROVED FOR U.S DISTRIBUTION. IMPORTANT DISCLOSURES CAN BE FOUND IN THE DISCLOSURES APPENDIX

COMPANY REPORTEQUITIES RESEARCH

SGL SJ

SIBANYE GOLD LTDSOUTH AFRICA / METALS & MINING

HOW WE DIFFER FROM THE STREET

BNPP Consensus % Diff

Target Price* (ZAR) 700.00 1072.75 (37.7)

EPS 2013 (ZAR) 1.15 2.14 (46.3)

EPS 2014 (ZAR) (0.44) 2.57 N/A

Positive Neutral Negative

Market Recs 2 3 3* in centsHOLD

TARGET*

CLOSE*

UP/DOWNSIDE

ZAR700.00

ZAR745.00

-6.0%

INDUSTRY OUTLOOK

Sunset on SibanyeINITIATIONA new South African gold mining company with old assets

Sibanye was unbundled from Gold Fields to become the tenth largest gold

producer in the world. We expect it to produce 1.2moz this year frommarginal deep underground mines and surface rock dumps in SouthAfrica. Production has been falling sharply and the company is the onlyone amongst its peer group with a declining production outlook.

PLANS SIBANYE CANT AFFORDSibanyes new plans a hard buy

Management intends to hold production steady but we expect it to fallurther before stabilising. New projects could sustain production in the

longer term. However, plans to mine pillars in the short term are unlikelyto add value, while increasing safety risk. These and other new plans willrequire capital that the company cannot afford at current prices.

VALUATIONInitiating coverage with a HOLD and TP of ZAR7/share at spot

Our DCF-based target price of ZAR7/share (based on the current spot gold

price) factors in lower-than-guided production but includes upside frompotential reserves. The company is highly geared and earnings are hedged

by the USD/ZAR exchange rate. Buyers of this stock should expect the goldprice to rise or the rand to continue to weaken.

RUNNING OUT OF OPTIONSLong-term fundamentals look weak

Although short-term metrics look attractive (forward PE of 6x and FY13Edividend yield of at least 4%), the long-term fundamentals are likely to

get worse. Surface rock dumps will contribute about 23% to free cashlow this year but their declining reserves and falling grades means

Sibanye expects this number to fall to 7% real in two years time. This willmake funding for new projects even more difficult. In addition, decliningproduction and fixed costs of 80% will likely move Sibanye even more

towards the top of the global cash cost curve.

INITIATION

Adrian [email protected]

+27 11 088 2181

BNP Paribas Securities (Asia) Ltd. research is available on Thomson One, Bloomberg, TheMarkets.com, Factset and on http://eqresearch.bnpparibas.com/index.Please contactour salesperson for authorisation. Please see the important notice on the back page.

29 MAY 2013

KEY STOCK DATAYE Dec (ZAR m) 2013E 2014E 2015E

Revenue 16,623 14,813 15,074

Rec. net profit 842 (320) (795)

Recurring EPS (ZAR) 1.15 (0.44) (1.09)

EPS growth (%) (75.0) (138.0) 148.5

Recurring P/E (x) 6.5 neg neg

Dividend yield (%) 3.9 0.0 0.0

EV/EBITDA (x) 2.4 4.2 5.8

Price/book (x) 0.4 0.3 0.3

Net debt/Equity (%) 22.6 35.3 39.4

ROE (%) 6.3 (2.0) (4.6)

Share price performance 1 Month 3 Month 12 Month

Absolute (%) (21.3) (42.7)

Relative to country (%) (24.2) (46.8) -

Next results August 2013

Mkt cap (USD m) 568

3m avg daily turnover (USD m) 7.4

Free float (%) 89

Major shareholder Investec (15%)

12m high/low (ZAR) 1630.00/673.00

3m historic vol. (%) 62.9

ADR ticker SBGL US

ADR closing price (USD; 24 May 13) 3.01

Issued shares (m) 733

Sources: Bloomberg consensus; BNP Paribas Cadiz Securitiesestimates

(76)

(66)

(56)

(46)

(36)

(26)

(16)

(6)

4

493

693

893

1,093

1,293

1,493

1,693

Feb-13 May-13

(%)(ZAr) Sibanye Gold Ltd Rel to FTSE JSE All Share
http://equities.bnpparibas.com/http://equities.bnpparibas.com/


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Sibanye Gold Ltd Adrian Hammond

2 BNP PARIBAS 29 MAY 2013

CONTENTS

Executive summary __________________________________________________________________________ 4

Introduction _________________________________________________________________________________ 5

Sibanyes plan _______________________________________________________________________________ 5

Potential reserves ____________________________________________________________________________ 5

Is pillar mining a game changer? _______________________________________________________________ 6

Can declining production be stopped? __________________________________________________________ 6

Surface rock dumps (SRD) _____________________________________________________________________ 7

Costs aligned with industry ___________________________________________________________________ 7

Risks _______________________________________________________________________________________ 8

Cash costs _____________________________________________________________________________________________________ 8

Once empowered, always empowered? ______________________________________________________________________________ 8

Loss of skills ___________________________________________________________________________________________________ 8

More safety-stoppages ___________________________________________________________________________________________ 8

Earnings ____________________________________________________________________________________ 8

Valuation ___________________________________________________________________________________ 9

Sensitivity __________________________________________________________________________________ 9

Investment recommendation _________________________________________________________________ 10

Appendix 1: Company background _____________________________________________________________ 11

Appendix 2: Geology and mining operations ____________________________________________________ 12

KDC _________________________________________________________________________________________________________ 12Beatrix _______________________________________________________________________________________________________ 12

Pay-limits and rationalising the operations _________________________________________________________________________ 13

Appendix 3: Reserves ________________________________________________________________________ 14

Underground reserves __________________________________________________________________________________________ 14

Where did all the reserves go? ____________________________________________________________________________________ 14

Appendix 4: Life-of-mine and amortisation _____________________________________________________ 16Historical life-of-mine (LoM) _____________________________________________________________________________________ 16

Impact on amortisation _________________________________________________________________________________________ 17


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Appendix 5: What is left in the lease? __________________________________________________________ 18

Managements strategic plans for KDC _____________________________________________________________________________ 18

Kloof ________________________________________________________________________________________________________ 20

Driefontein ___________________________________________________________________________________________________ 21

Beatrix _______________________________________________________________________________________________________ 22

Opportunities beyond the lease area _______________________________________________________________________________ 23

Appendix 6: Potential upside _________________________________________________________________ 24

Appendix 7: Surface rock dumps ______________________________________________________________ 25

Appendix 8: Tailings project __________________________________________________________________ 26

Assumptions and results ________________________________________________________________________________________ 26

Environmental challenges _______________________________________________________________________________________ 27

Appendix 9: Current life-of-mine plans _________________________________________________________ 27

Appendix 10: Historical production ____________________________________________________________ 29

Appendix 11: Production outlook ______________________________________________________________ 29

Appendix 12: Costs and capex ________________________________________________________________ 30

Cost inflation __________________________________________________________________________________________________ 31

Cost savings ___________________________________________________________________________________________________ 31

Global cash costs ______________________________________________________________________________________________ 32

Capex ________________________________________________________________________________________________________ 33

Appendix 13: Valuation ______________________________________________________________________ 34

Model assumptions and inputs ___________________________________________________________________________________ 34

Other cost assumptions: _________________________________________________________________________________________ 34

Results _______________________________________________________________________________________________________ 34

P&L, Balance Sheet and Cash Flow ____________________________________________________________ 36

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Executive summary

Management intends to hold production steady at between 1.2moz to 1.3moz over the next three years. However, production has been falling sharply over the last decade as a result of declining grades,

volumes, development metres and productivity.

Sibanyes new plans will attempt to arrest this trend by maintaining development rates and miningpillars and secondary reefs. Details of their new plans will be revealed later this year.

After taking a comprehensive look at their assets, we estimate there are no less than 3.7m oz ofpotential reserves from pillars and projects below infrastructure. Plans to mine pillars could take twoyears to implement fully and new projects below infrastructure could start in 2017.

Secondary reefs are unlikely to add any value, in our view. There are no other attractive growth optionsor opportunities with neighbouring mines, in our view.

Pillar mining is a low volume and slow process and will likely increase safety risks. To realise anybenefit, managements first step will be to arrest the current decline in production first in order to keepunit costs from escalating. Additional capital will be required for development but, in our view, thecompany cannot afford any new projects at current prices.

We expect production is unlikely to recover from FY12 levels and management could take about twoyears to stabilise production. Q1 FY13 development rates indicate a good recovery from labour unrestlast year, but further improvement in these rates is necessary.

Surface rock dumps (SRD) are an important source of low-cost ounces for the business, contributing asmuch as 23% to group free cash this year. However reserves will soon be depleted and will make thechallenge for management even harder. We estimate that plans to replace these cash flows from atailings project are unlikely to add value.

Although Sibanyes C11 cash costs are one of the highest in the industry, C32 costs are in line withpeers.

We estimate that real C3 cash costs could be maintained at about ZAR380,000/kg for three years ifproduction is sustained above 1.15moz and cash savings of at least ZAR1b (10%) are achieved, asexpected. Beyond this period, real costs are likely to rise as production falls.

Sibanye is currently cash generative and the short-term metrics look attractive. The share is highly geared to the gold price and the USDZAR exchange rate has provided a good hedge

to earnings from falling gold prices.

The share is currently trading at a forward PE of 6x and we expect a dividend yield of at least 4% thisyear.

However the long-term fundamentals will get worse. Buyers of this stock need to hold the view that thegold price will rise or the Rand will continue to weaken.

The company cannot generate any earnings or free cash in the next year at current prices3. Based on the current life-of-mine plan, we value Sibanye at ZAR11/share. This is a result of our more

bearish outlook on production in the early years as well as more capital to develop new projects.

Based on our realistic view of production as well as potential reserves, we value Sibanye at ZAR7/share,at current spot prices.

We initiate coverage with a HOLD recommendation.

1C1 = mining costs

2C3 costs = mining costs + corporate overheads + ongoing capital

3Current prices taken at USD1,380/oz gold and ZAR9.4/USD


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Introduction

Gold Fields [GFI SJ, Not Rated] unbundled its mature South African assets into a separate vehicle, SibanyeGold, which was listed on 11 February 2013. Sibanye holds the Kloof, Driefontein and Beatrix mines locatedin South Africas Witwatersrand Basin. It is the tenth largest gold producer in the world. About 92% ofproduction comes from underground and 8% from surface rocks dumps. Management is reviewing twooptions for a new tailings project.

These mines are mature, deep-level and marginal. Costs are as much as 80% fixed and are highly geared tothe ZAR gold price. Kloof and Driefontein mines are currently cash generative while Beatrix isnt.

Reserves have declined over 70% in the last five years as a result of higher pay-limits, lower mine callfactors and a more strict SAMREC code. The average life-of-mine has fallen from 20 years to 14 years overthis period. This has caused amortisation charges to increase almost 70% which we expect will continue torise. We have low confidence in the current life-of-mine plans4. Beatrix West section is expected to closethis year and further shaft closures remain an option for management.

KDC and Beatrix together produced over 3moz per annum 10 years ago. Production has steadily fallen toaround 1.3moz. Whilst under the Gold Fields umbrella, capital programmes at KDC and Beatrix had beenheld back. The new management team plans to re-vitalise the business by reviewing previously withheldprojects. Sibanyes new plan is set to be released later this year. The company is being led by NealFroneman who previously managed Gold One and Uranium One.

Sibanyes plan

The company is reviewing current LoM plans and will reveal its new strategy by the end of the year. Someof its new plans have already begun to be implemented and include the following:

1 Hold production steady at between 1.2moz to 1.3moz over the next three years by doing the following:a Maintain development rates and improving the blast frequencyb Assess potential reserves from pillars, secondary reefs and new projects below infrastructure

2 Reduce the workforce by 4,000 to 5,000 people, of which 3,000 have already been retrenched3 Reduce costs by 20% within 18 months, with about 5% achieved so far4 Develop a new tailings project to address the decline in SRDsPotential reserves

Based on our assessment of opportunities within and beyond the lease for KDC and Beatrix, we estimatethere is no less than 3.7m oz of potential reserves (EXHIBIT 35)

5. Of this about 1moz lies below

infrastructure and the balance comes from safety-related and shaft pillars at KDC. Mining has progressedtowards the lease boundaries. There are no other attractive growth options, in our view.

EXHIBIT 1: Potential reservesSource Potential reserve Life (years) Annual production Start year

(koz) (koz)

Pillars 2,1006

11.0 190 2015

Shaft pillar 560 4.3 130 2017

Projects below infrastructure 1,030 3 - 6 220 2017

Sources: Sibanye Gold; BNP Paribas Cadiz estimates

There are also potential reserves from secondary reefs, although we do not expect mining them will bevalue accretive to the business, but only necessary to de-stress the mining of pillars below.7

4 See Appendix 9: Current life-of-mine plans for details5See Appendix 4 and 5 for our detailed assessment

6Assumes all the pillars that were previously removed can be brought back7The secondary reefs are low grade and management are prepared to mine them at cost


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Is pillar mining a game changer?

Management believes mining pillars holds significant upside. Some pillars are high grade and mining themwould appear to be highly profitable

8. However, pillar mining is a low volume and slow process. Additional

capital will be required for development. In addition, current fixed costs are as high as 80%. To thereforerealise any benefit from pillar mining, management will need to arrest the current decline in productionfirst to keep unit costs under control.

The potential reserves are not likely to become reserves until updated pre-feasibility studies are completeand/or further drilling is done. We therefore expect these plans to take at least two years to implement.

Can declining production be stopped?

Management faces a difficult task to buck a 10-year trend of falling grades, volumes, development metresand productivity

9. Below we show the current Life-of-Mine Plan and the BNP Case.

EXHIBIT 2: Sibanye Gold production outlook

Source: BNP Paribas Cadiz estimates

EXHIBIT 3: Potential reserves2012 2013E 2014E 2015E 2016E

(moz) (moz) (moz) (moz) (moz)

Management guidance 1.22 1.29 1.2 1.3 1.2- 1.3 1.2 1.3

Life-of-mine plan 1.22 1.29 1.25 1.26 1.17

BNP Case 1.22 1.22 1.15 1.16 1.16


The BNP Case assumes production is unlikely to recover from FY12 levels and it will take at least two yearsto stabilise production

10. New projects should come online by 2017.

8EXHIBIT 25

9Since 2008, tonnages have fallen 8% pa, grades 4% pa, and development metres 6%pa. Blast frequencies have halved.

10See Appendix 11: Production outlook for further details on our assumptions

0.0

0.5

1.0

1.5

2.0

2.5

2007

2008

2009

2010

2011

2012

2013E

2014E

2015E

2016E

2017E

2018E

2019E

2020E

2021E

2022E

2023E

2024E

2025E

2026E

2027E

2028E

2029E

(moz pa) Current LoM plan BNP case


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Surface rock dumps (SRD)

Surface rocks dumps are an important source of low-cost ounces for the business. Sibanye expects SRDs tocontribute 23% to group free cash in 2013. However reserves are almost depleted and production willshrink to one third by 2015.

EXHIBIT 4: LoM production from SRDs EXHIBIT 5: Real free cash from SRDs

Source: BNP Paribas Cadiz estimates Source: BNP Paribas Cadiz estimates

Real free cash from SRDs is expected to diminish by 2015 and the contribution to the group is expected tofall from 23% this year to 7% by then. Management is considering a new tailings project to replace theSRDs. From our analysis, the project could yield positive cash flows in the first two to three years but theproject as a whole is NPV negative

11.

Costs aligned with industry

Sibanye has one of the highest C112

cash costs in the industry. However, its C313

cash costs, which are morereflective of sustaining cash flows, are similar to the rest of its South African peer groups (EXHIBIT 6).

Sibanye is currently cash generative at current gold prices with C3 cash margins of about 10%.

EXHIBIT 6: Spread between peer group C1 and C3 cash costs

Normalised cash costs for Q1 2013, we include capex for South Deep as part of Gold Fields C3 costsSource: BNP Paribas Cadiz estimates

We estimate that Sibanyes real C3 cash costs can be maintained at about ZAR380,000/kg for three years ifproduction is sustained above 1.15moz and cash savings of at least ZAR1b (10%) are achieved

14.

11 This is due to declining grades. Our NPV-neutral price is USD1,750/oz gold and USD65/lb U3O8.See Appendix 8: Tailings project12

BNP Paribas Cadiz mining cost definition:C1 = mining cash costs13

BNP Paribas Cadiz mining cost definition:C3 costs = mining costs + corporate overheads + on-going capital14We estimate about ZAR0.5b in savings have already been achieved largely as a result of retrenchments.

0

20

40

60

80

100

120

2012 2013E 2014E 2015E 2016E 2017E

(koz) Kloof Driefontein Beatrix

0

5

10

15

20

25

0

100

200

300

400

500

600

2012 2013E 2014E 2015E 2016E 2017E

(%)(ZAR m) Real free cash before tax

Contribution to group

700

800

900

1,000

1,100

1,200

1,300

1,400

C1 C3

(USD/oz) Harmony Gold Sibanye Gold AngloGold Gold Fields


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Risks

Cash costs

Sibanye already has one of the highest cash costs in the industry at the C1 level. It is the only companyamongst its peer group with a declining production outlook. In addition, fixed costs of almost 80% arehigher on average compared to other deep-level South African mines. If management cannot arrest thefalling production trend, Sibanyes real C3 cash costs will likely rise above USD1,400/oz in FY14, andbecome the highest cost South African producer.

Once empowered, always empowered?

Sibanyes directBlack Economic Empowerment (BEE) ownership is 11.75%. However the company has alegal opinion that it complies with the minimum 26% ownership requirement based on Mvelas sale of its15% stake in Gold Fields in 2009. Although the Mining Charter is not part of the MPRDA Mining Act,companies appear to be interpreting it in different ways. The risk is that not maintaining a direct 26%ownership could come back to haunt shareholders.

Loss of skills

Management has already retrenched 3,000 employees this year so far, with more expected. Plans to cut outmiddle management could cause senior managers to be spread more thinly between operations. This couldhave a negative impact on productivity.

More safety-stoppages

Pillar mining is a high-risk activity. Safety and regional pillars are left over from previous mining activitiesto provide support. These pillars are located between 2km and 3.5km below surface. Management will haveto thoroughly understand the rock mechanics in order to minimise seismicity if they decide to mine thesepillars. We think this could result in more safety stoppages and negatively impact production.

Earnings

We forecast earnings of ZAR1.150/share for FY13. We expect the company should also manage to fund adividend this year of about 30cpsfrom free cash. However, at constant prices, the company is unlikely togenerate any future earnings.

A gold price of USD1,450/oz or ZAR440,000/kg should sustain positive earnings for two more years.

EXHIBIT 7: Sibanyes earnings outlook2012 2013E 2014E 2015E

(ZAR m) (ZAR m) (ZAR m) (ZAR m)

Gold price USD/oz 1,669 1,460 1,380 1,380

ZAR/USD 8.21 9.3 9.4 9.4

Revenue 16,554 16,623 14,813 15,074

Cash costs 10,874 11,837 12,086 12,681

Gen. & Admin. 229 229 200 216

Rehab 48 48 48 48

Restructuring 124 500

EBITDA 5,935 3,821 2,363 2,054

Net interest 21 359 393 478

Net profit before tax 2,615 1,171 (83) (613)

Tax 475 90 - -

Deferred tax (840) 240

Tax rate (14%) 28% 0% 0%

Net income 2,978 842 (320) (795)

HEPS 4.08 1.15 (0.44) (1.09)


We forecast earnings atconstant gold prices but

using nominal costs.

We include real costsavings of ZAR1b over the

next 18 months.

We expect restructuringcosts of about ZAR500m

this year, largely forretrenchments.

Interest charges are likelyto rise as the need for debt

increases.

The company maintains adividend policy of 25% to

35% of earnings.


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Valuation

We value Sibanye at ZAR7/share based on a real DCF methodology at current prices of USD1,380/oz andZAR9.4/USD. Below we show the NPV of the mines including net debt to arrive at our target price

15. If we

based our valuation on the current LoM plan, our valuation would be ZAR11/share16. This is a result of ourmore bearish outlook on production in the early years as well as more capital to develop new projects thatwill sustain production for longer in the later years.

EXHIBIT 8:Valuation of Sibanye Gold based on BNP Case and current LoM plan

Source: BNP Paribas Cadiz Securities

Sensitivity

Below we show the sensitivity of the gold price and ZARUSD exchange rate to our Best Case DCF valuation.

EXHIBIT 9: Sensitivity of target price to ZAR gold-------------------------------------------------------- ZAR/USD ---------------------------------------------------------

9.0 9.4 10.0 10.5 11.0

1,350 1 5 11 15 19

1,380 3 7 12 17 21

USD/oz 1,400 4 8 14 18 23

1,450 8 12 26 22 26

1,500 11 14 20 25 30

1,550 14 17 23 28 33

1,600 16 20 26 32 37


High C1 and C3 costs as well the high fixed/variable cost ratio makes the share highly geared to ZAR gold.

15We do not include any environmental liabilities since these funds are currently fully funded.

16This is due to higher production in the early years and declining capex from next year on.

7.0

11.0

6.1

4.5

0.3

3.8

0

2

4

6

8

10

12

Driefontein Kloof Beatrix Net debt BNP Case Current LoMCase

(ZAR/share)


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Investment recommendation

Sibanye is currently cash generative, has an attractive forward PE of 6x and dividend yield of at least4%.

Although Sibanye has one of the highest C1 cash costs in the industry, its C3 cash costs are in-line withpeers and the weaker rand has helped boost cash margins above its competitors.

Based on historical trends and the current LoM plan, the fundamental outlook looks poor.

However, management has a bullish view that production of between 1.2moz to 1.3moz pa can besustained over the next few years.

We think this is optimistic. Production has been falling sharply over the last decade in line with falling development. To arrest this trend development rates will need to be maintained.Q1 FY13 development rates indicate a

good recovery from last years labour strikes, although further improvement is necessary.

In addition, blast frequencies need to be improved. This will require a change to labour workingschedules, something management will likely struggle to negotiate in the upcoming wage review.

Plans to mine pillars and secondary reefs will take at least two years to implement although miningthem will be unlikely to provide any upside but more safety risk, in our view.

The company cannot afford any new projects at current prices. It currently has net debt of ZAR2.8b andwill not be able to generate enough free cash as production from the low-cost SRDs begins to fall.

We value Sibanye at ZAR7/share at current prices. Upside and downside risks include the gold price,USD/ZAR exchange rate, production and potential safety stoppages.

Buyers of this stock need to hold the view that the gold price will rise or the rand will weaken further. We initiate coverage with a HOLD recommendation.


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Appendix 1: Company background

Sibanye Gold owns and operates the KDC complex and Beatrix mines. The location of these mines is shownin EXHIBIT 10 below.

EXHIBIT 10: Location of mines

Source: Sibanye Gold

The KDC complex is situated in Carletonville outside Johannesburg and consists of KDC East (Kloof) and KDCWest (Driefontein). Their lease areas are contiguous although their mining operations are not. Beatrix islocated near the town of Virginia in the Free State province, on the south-western corner of theWitwatersrand Basin.

The company is also developing a tailings project in partnership with Gold One. Below we show thecorporate structure of Sibanye Gold and top shareholders.

EXHIBIT 11: Corporate structure of Sibanye Gold EXHIBIT 12: Top shareholders as at 26 April 2013Shareholder Ownership

(%)

Investec 15.21

Allan Gray 10.13

First Eagle 5.40

Van Eck 4.90

PIC 4.34

Source: BNP Paribas Cadiz Securities; Sibanye Gold Source: Sibanye Gold

Sibanye Gold

Kloof Driefontein BeatrixTailingsproject

100%


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Below we show the relative size of each operation based on production in FY12.

EXHIBIT 13:Annual production (FY12A) of existing operations


Appendix 2: Geology and mining operations

KDC

Currently three main reefs are mined; VCR, Middlevlei and Carbon Leader. The VCR is the dominant reefmined. This reef dips at 22 to the south-southeast. There are secondary reefs although these account forless than 10% of current reserves. Mining takes place at depths of between 600 and 3,350 metres belowsurface (mbs).The main mining method is breast stoping with dip pillars.

The KDC lease area is effectively split into two by the Bank Fault. Kloof lies to the east and Driefontein tothe west. Operations consist of 12 separate shaft systems, although they are highly integrated with respectto ventilation and ore transport systems. Costs are allocated per shaft, grouped together into five businessunits (EXHIBIT 14).We expect that these units may be consolidated as part of cost cutting measures. Anysuch details will be released this year when management reveals its new strategy for the company.

EXHIBIT 14: KDC Business UnitsBusiness unit Mine Shafts

1 Driefontein 1 and 5

2 Driefontein 2 and 4

3 Driefontein 6, 7, 8 and 10

4 Kloof 3 and 4

5 Kloof Main, 7, 8 and 10


Beatrix

The reefs being mined include Beatrix Reef, Aandenk Reef, VS5 Reef and Kalkoenkrans Reef. The dip of thesereefs is to the north between 0 and 15 except for the deeper Kalkoenskrans Reef which dips to the east at8 to 15. There is a deeper lying Beisa Reef although it is too fractured to be mined at current gold prices.Beatrix includes 1 and 2 shaft (South section), 3 shaft (North section) and 4 shaft (West section).Four shaftwas initially developed as a uranium mine.

Mining takes place at depths of between 600m and 2,155m below surface. South section reaches depths of1,000mbs;North: 1,500mbs and West: 2,500mbs. Over 80% of operating profits are generated by Northsection.

The main mining method is conventional breast mining. The mine has high levels of methane gas which is ahazard to safety and production although this appears to be well managed.

0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000

SRDs

Beatrix

Driefontein

Kloof

(oz)


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Pay-limits and rationalising the operations

Kloof and Driefontein are mining at levels 37% above the pay-limit, as of 2012. Beatrix however has beenoperating at the margin (EXHIBIT 15). This is due to the high costs associated with the West section. Thereserve pay-limit is 1,690cmg/t, well below the average mined value of 1,045cmg/t for (EXHIBIT 16). Thepay-limit for Beatrix would fall to about 900cmg/t without Beatrix West.

The West section is plagued by depth, heat and long haulage distances. In addition, the presence ofsmectite in the footwall has caused excavations to close making mining technically challenging in this area.

Gold grades at this mine are4.3g/t on average.

EXHIBIT 15: Pay-limits and mined values EXHIBIT 16: Pay-limit at Beatrix North, South and West sections

Sources: Sibanye Gold; 2012 figures Sources: Sibanye Gold; 2012 figures

Pre-developed ore reserves have been significantly depleted as a result of the strikes in Q4 2012 as well asfrom a fire earlier this year. Although the mine only contributes 6% to group production, cash costs arecurrently about R550,000/kg which places this mine in a cash negative position. Management at both KDCand Beatrix plan for unpay/pay ratio of 30%/70%.

Beatrix West has not been profitable since 2011 and is currently in a Section 189 process, the outcome ofwhich will determine whether the mine will remain open or not. Management has two choices:

1 Continue operating the mine at a cash loss of at least ZAR300m pa at current prices.2 Place the mine on care and maintenance and keep it as an option on gold and uranium. This will come

with a once-off cost of about ZAR250m for the retrenchment of about 3,000 people. Uranium grades atBeatrix West are 0.4kg/t on average and the breakeven price is about USD55/lb U3O8.

Management intends on pursuing the second choice in order to maintain the option on uranium.

0

500

1,000

1,500

2,000

2,500

Kloof Driefontein Beatrix

(cmg/tonne) Reserve pay limit Mined value

780900

1,690

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

North South West

(cmg/tonne)

Averagemined value: 1,045cmg/tonne


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Appendix 3: Reserves

As of December 2012, Sibanye Gold held 13moz of underground reserves and 520koz of surface rock dumpmaterial.

Underground reserves

Of the three main operations, Kloofholds the majority of the reserves (42%), has the highest reserve gradeof 8.3g/t and the longest life of 15 years. Below we show the change in reserves and reserve grades for each

mine since 2007.

EXHIBIT 17: Historical reserves per mine EXHIBIT 18: Historical reserve grade per mine

Sources: Sibanye Gold; reserves for underground operations only Sources: Sibanye Gold; reserve grades represented for underground operations only

Despite the rise in gold price17

, reserves have fallen 70%in the last five years. Reserve grades have fallenfrom 8.6g/t to 7g/t over the same period.

Where did all the reserves go?

Below we show the reconciliation ofunderground reserves since 2007.

EXHIBIT 19: Reconciliation of underground reserves

Sources: Gold Fields; Sibanye Gold

Since 2007, the following major changes were made:

10.8moz (31%) reserves lying below infrastructure18

17KDC and Beatrix Technical Short Form Report 2011 for a 10% increase in the gold price, it is expected that reserves should increase

about 10%.

13.3

21.2

8.4

10.7

19.5

6.7

10.2

18.0

6.4

7.9

11.9

5.47.0 6.44.95.5 4.2

3.3

0

5

10

15

20

25


(moz) 2007 2008 2009 2010 2011 2012

8.307.50

4.30

0

2

4

6

8

10

12


(g/tonne) 2007 2008 2009 2010 2011 2012

42.9

8.0

10.82.1

8.9

13.0

0

5

10

15

20

25

30

35

40

45

50

2007 reserves Production Removal ofreserves belowinfrastructure

Exclusion ofpillars

due to sa fety

Other exclusions 2012 reserves

(moz)

?


15/40



2.1moz (6%) from pillars (as a result of safety concerns) The outstanding 8.9moz were removed for economic reasons which includes the following: 2.5moz due to lower MCF and higher pay-limits. 2.6moz from the closure of D8 and K8 shafts. This was done to conserve cash in the short term by

focusing on the most profitable mining areas only.

Approximately 1moz were removed from D1 shaft after further drilling confirmed those reserveswere not actually there.

This leaves 2.8moz unaccounted for although we expect this was removed for similar reasons discussedabove.

Below we list the four main reasons for the decline in reserves and discuss the first three:

1 Rising pay-limits2 Lower mine call factor3 A more strict adherence to the SAMREC Code, which details the rules for declaring reserves in South

Africa

4 Closures of certain mining areas to conserve cash in the short termRising pay-limits

Resources above the pay-limit can be considered reserves. A primary input in calculating the pay-limit is anestimation of costs. Below, we show historical costs as well as the pay-limits in 2009 compared to 2012.

EXHIBIT 20: ZAR/tonne costs at KDC and Beatrix EXHIBIT 21: Pay-limits in 2009 and 2012

Source: Gold Fields Source: Gold Fields

Historical unit costs at KDC and Beatrix have risen 14% and 16% y/y19

since 2005, respectively. The rate atwhich costs have been rising has also been on the rise. This is largely due to falling tonnages20 but alsopoor mining practice. Channel widths have widened from about 180cm to 140cm. This has resulted inhigher dilution, raising the pay-limit in the estimation of reserves.

It is likely that in calculating reserves historically, future costs may have been underestimated. This wouldhave artificially inflated estimates for reserves. As costs have been rising unexpectedly, increasing the pay-limits, hence reserves have fallen.

18 These reserves did not form part of a Feasibility Study and since management took the decision to follow SAMREC compliance morestrictly, had to be removed from the reserve statement. Not all South African companies apply the same principles in this regard.19

CAGR calculated based on quarterly data20 See Appendix 12: Costs and capex

0

500

1,000

1,500

2,000

2,500

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

(ZAR/tonne) KDC Beatrix

0

200

400

600

800

1,000

1,200

1,400

1,600


(cmg/t) 2009 2012


16/40



Lower mine call factor

The mine call factor has fallen as much as 10% since 2008 (EXHIBIT 22). Management cites the reasons tobe poor discipline and the depletion of old gold which does not get accounted for in the MCF calculation.

EXHIBIT 22: Historical mine call factorMCF 2008 2009 2010 2011 2012

(%) (%) (%) (%) (%)

Kloof 86 85 83 85 81

Driefontein 90 91 90 85 80

Beatrix 88 85.5 84 74 79


SAMREC

In 2009, the South African Code for the Reporting of Exploration Results, Mineral Resources and MineralReserves (SAMREC CODE), made a significant change to its guidelines. This included the requirement of aPre-Feasibility Study, as opposed to only a Concept Study, in the declaration of reserves. In the case forKDC, the KEA project at Kloof and the tailings project were removed, a total of 3.7moz.

Appendix 4: Life-of-mine and amortisation

Historical life-of-mine (LoM)

The downward adjustment to the reserves has significantly impacted Sibanye Golds life of mine. Below weshow the estimated life-of-mine since 2007.

EXHIBIT 23: Historical LoM estimates

Sources: Gold Fields; Sibanye Gold

Driefonteins LoM has been reduced from 2041 to 2023, in line with reserves. Kloofs LoM has increased from 2023 to 2027 but has been volatile following the inclusion and then the

exclusion of the KEA project.

Beatrix LoM has increased from 2020 to 2025.

2015

2020

2025

2030

2035

2040

2045

2007 2008 2009 2010 2011 2012

(LOM calendar year) Kloof LoM Driefontein LoM Beatr ix LoM


17/40



Impact on amortisation

Amortisation of capital is largely determined by LoM estimates. The rapid fall in reserves, and consequentlythe fall in life-of-mine, together with steady stay-in-business capital, has resulted in larger amortisationcharges. We illustrate this trend in EXHIBIT 24 below.

EXHIBIT 24: Life of mine and amortisation

Sources: Gold Fields; Sibanye Gold; BNP Paribas Cadiz Securities

We expect capex to remain at least steady and LoM is unlikely to increase. Amortisation charges to at leastremain steady.

2022

2024

2026

2028

2030

2032

2034

2036

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1,7001,800

2007 2008 2009 2010 2011 2012

(LoM calendar year)(Rm) Amortisation LOM avg


18/40



Appendix 5: What is left in the lease?

Whilst under the Gold Fields umbrella, capital programmes at KDC and Beatrix had been held back. Sibanyenow wish to re-capitalise the business by re-visiting previously withheld projects. These projects includethe following areas of potential:

1 Mining of pillars, including safety-related pillars, regional pillars and shaft pillars at KDC

2

Mining of secondary reefs including the Middlevlei and Kloof Reefs at KDC

3 Mining below infrastructure at both KDC and BeatrixManagements strategic plans for KDC

Pillars

The extraction of remnant pillars between 2km and 3.5km below surface at KDC is being reviewed.Management intends mining these pillars by using new technologies, de-stress mining and over-stopingtechniques. De-stress mining is intended to be achieved by mining the secondary reefs that lie above thepillars.

Pillars were removed from reserves in 2010. This was largely a management decision due to safetyconcerns. We expect that it will be difficult for the company to bring all these ounces back into reserves for

the following reasons:

1 KDCs normalised21 ZAR/tonne costs have increased 2.5x since 2005. Research on the extraction ofpillars at KDC Main Shaft in 2005 indicated an average cost of ZAR750/tonne or about ZAR1,900/tonne intodays money. High cost inflation over the last few years will likely have an impact on the economics ofextracting these pillars.

2 The pillars are scattered over a large area and their economic viability will largely depend on a shaft-by-shaft basis. KDC has relatively high fixed costs (80%) and in many cases, we think it will be difficultto maintain a single shaft by extracting pillars alone.

In addition, due to the inherent safety risk in mining pillars, management will need to get consent from theDMR. The high safety risk relating to pillar mining is largely due to challenging rock mechanics.

21Adjusted for production based on a fixed: variable split of 80:20.


19/40



Below we show the location of the pillars at KDC. We also show the cost to extract certain pillars at MainShaft22.

EXHIBIT 25: Location of pillars


We make the following observations:

The pillars are spread over a wide area which would require many shafts to remain open. The extraction of shaft pillars is a slow incremental process and volumes would be significantly lower

compared to current volumes22.

Some pillars are high grade and mining them would appear to be highly profitable. However,development will be required to access the secondary reefs in order to de-stress the pillars. This is notfactored into the mining cost.

Based on the above, we do not expect all the pillars to re-enter reserves. We also do not expect pillarmining to add a significant benefit to the business due to low volumes and the existing high fixed cost baseof the business

23.

Secondary Reefs

There are three secondary reefs located at Kloof mine: Middlevlei, Kloof and Libanon Reefs. They are low

grade but shallow. No resource data has been made available. Management is expected to provide plans byJuly 2013 for potential ways in which to mine these reefs. Of the three reefs, management appears mostinterested in the Middlevlei Reef. Due to existing infrastructure, accessing this reef would require less-than-normal development and costs should be relatively lower.

As mentioned previously, management intends mining pillars in conjunction with secondary reefs. Bymining the secondary reefs first, it will allow for de-stressing of the pillars. However, this practice aloneposes a high safety risk. The Middelvlei Reef lies 50m to 75m above the Carbon Leader (at Driefontein) andmining this ground above a void makes seismicity, hence falls of ground, more likely. This risk is similar tothe limitation miners have in the number of lifts one can mine at once using the block-cave miningmethod

24.

22Adapted from estimates from Project report pillar mining at No.1 and 2 sub-shaft on Kloof Gold Mine by S. Van der Merwe (SAIMM)

23As much as 80% of cash costs are fixed.

24A good example is the mining approach for Wafi Golpu.

Pillars at main Shaft:between 2km and 3.5km deep,63kt,22g/t average grade,45k oz,mined over 21 months,mining cost of ZAR1,900/tor R86,000/kg.

dip


20/40



Shaft pillars

Mining has commenced at K1 shaft pillar at Kloofand D4 shaft pillar at Driefontein. Management indicatesthat the only other shaft pillar they could potentially mine is D1.

Other resources and inventory

In addition to the above three areas of potential, management has indicated there are significant resourcesand inventory

25they are busy reviewing to bring back into reserve (EXHIBIT 26).

EXHIBIT 26: Resources and Inventory at Kloof and DriefonteinKloof Driefontein

(moz) (moz)

Resources 12.2 8.2

Inventory 10 11

Total 22.2 19.2


The company intends to provide an update on its strategy that will incorporate the above ideas by July2013. Below we assess some of these ideas that management has discussed in conjunction with the latestmine plans.

KloofBelow we assess the Kloof lease area.

EXHIBIT 27: Kloof lease area EXHIBIT 28: Kloof reserves by mine shaft (December 2012)

Source: Sibanye Gold Source: Sibanye Gold

25Inventory is a relatively uncommon category of mineral classification. It refers to resources that exist although not declared based on

managements decision not to mine.

0

500

1,000

1,500

2,000

2,500

3,000

8 shaft 1 shaft 7 shaft 3 shaft 2 shaft 4 shaft

(koz)

Grade toolow

High grade butbelow infrastructure

Low grade,below infrastructure,too far

Middlevleiopportunity

Gold FieldsSouth deep

area

Pillars: potentialto re-open 10moz resource


21/40



Recent changes to Kloof mine include a reduced level of mining at7 shaft. This has effectively broughtmining in the southern part of Kloofs lease area to an end, primarily as a result of low grades. Wetherefore expect that reserves at 7 shaft (456koz) will likely be removed. Mining of the shaft pillar atMain Shaft has begun although this is already in reserves.

The Middlevlei Reef offers opportunity in the 8 shaft area. This reef is close to existing infrastructure. There is significant shallow un-mined ground at Venterspost (6 shaft) to the north although grades here

are too low (about 2g/t) for economic extraction.

What is effectively left for Kloof mine is 4, 3 and 2 shaft, and a new project called the Kloof Extension Area,which we discuss below.

Kloof Extension Area (KEA)

A 2.26moz resource potential lies below infrastructure on the eastern boundary at Kloofs 4 shaft.Management intends on accessing these potential reserves via a spiral decline (46 decline) which wouldextend 44 level to eventually 48 level. Extension beyond the boundary into South Deeps lease area is notpossible due to displacement by the West Rand fault. Drilling results indicate grades of between 11g/t and12g/t. Management estimates that production could begin in no less than three years at a cost of ZAR0.5bto gain access to 46 level. An article by Mining Weekly in October 2006, when the project was first plannedfor, cited a cost of ZAR1.4b. This higher number is based on extending down three levels. It also indicatedpeak production of about 200koz pa. This represents significant potential to the lease area although depths

would need to be increased beyond 4km below surface. This would not come without an increase to realcosts (largely due to needed refrigeration26).

Based on a resource/reserve ratio of 36%27, we estimate about 800k oz reserve potential for the KEA zonein the next three to four years. However this project is likely to only offer some replacement to the minesfalling production profile.

Driefontein

Below we assess the Driefontein lease area.

EXHIBIT 29: Driefontein lease area EXHIBIT 30: Driefontein reserves per mine shaft (December 2012)

Source: Sibanye Gold Source: Sibanye Gold

26Virgin rock temperatures are of the order of 55C

27Derived from the resource/reserve ratio of 4 shaft zone, of which the KEA zone is an extension of.

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

10 shaft 6 shaft 8 shaft 2 shaft 1 shaft 4 shaft 5 shaft

(koz)

D1 shaftpillar

9 Shaftdifficult toaccess, requires

new shaft

D5 shaftdeeps

Pillars and secondary

reef potential 1moz


22/40



Mining at 2 and 8 shaft has been very successful for Driefontein to date. The majority of reserves nowremain at 5 and 4 shaft. Management is considering entering ground below infrastructure at 5 shaft.This area has potential for three new levels. Each level has a potential of 300koz reserve. We expectthat at least two years would be needed to gain access and produce gold from this area. However,depths would reach below 3.5km and we would expect this to remain only an option for now at currentprices.

There is potential to mine the ground at 9 shaft although this would need to be done from its neighbour,AngloGolds Tau Tona mine. Nine shaft had been ideally positioned to access reef from both Driefontein

and Tau Tona, as a joint venture project. The project started in 2008 but was then stopped due to powersupply concerns and capital commitments for South Deep. Management indicates that there is apotential of 8.5m oz resource. Mining at 9 shaft remains as a long-term option.

Management intends on mining 1 Shaft pillar at Driefonteinvia 2 Shaft. The company has indicated thatthere is 560k oz of mineable reserves which they expect to mine from 2017 onwards. This amount hasnot yet been included in the reserve statement. We expect these ounces to provide about 2 years lifeextension at the indicated LoM production rates.

There is about 1m oz potential from pillars at 10 and 6 shaft. These pillars would be mined inconjunction with the Middlevlei and Kloof reefs.

Beatrix

Below we assess the Beatrix lease area.

EXHIBIT 31: Beatrix lease area EXHIBIT 32: Beatrix reserves per mine section

Sources: Sibanye Gold; BNP Paribas Cadiz Securities Sources: Sibanye Gold; BNP Paribas Cadiz Securities

West section is no longer economic, as previously discussed. We therefore exclude production from thisshaft in our forecasts. This mine however does still hold potential in addition to holding an option onuranium. The Beisa Reef which lies below the Kalkoenkrans Reef, holds 7.5moz in resource. However, itis highly fractured and too costly to mine at current prices.

South section has about three years life remaining based on current reserves of about 250koz.Growth or replacement of reserves at Beatrix can only come from below infrastructure within the currentlease area. This includes the Vlakpan ground west of North Section and down-dip opportunities at Northshaft:

Vlakpan

Early development work to access the Kalkoenkrans Reef between 16 level and 22 level west of BeatrixNorth shaft has begun. The area is relatively shallow (1,500mbs). Management is considering access via adown-dip decline or a sub-vertical shaft. The project could add 230koz potential reserves.

0

500

1,000

1,500

2,000

2,500

South West North

(koz)

Too deep

and far

Down-dipextension

Vlakpan


23/40



North Section

The down-dip extension at North section would unlikely result in growth but replacement of lower costwith higher cost ounces.

In summary: There are only two capital opportunities the company intends to pursue within the currentlease area: the KEA project at Kloof mine and Vlakpan project at Beatrix mine. The resources at these areaslie below infrastructure are not significant enough to either grow or maintain production, or reduce unitcosts, in our view.

Opportunities beyond the lease area

There are a number of opportunities adjacent to the current lease areas at Beatrix and Driefontein mine, asshown in EXHIBIT 33 and EXHIBIT 34 below. These include:

Driefontein: As mentioned previously, 9 shaft can only be mined from the neighbouring Tau Tona mine.This ground could be sold to AngloGold although AngloGold management does not intend pursuing this.

Beatrix:Two options exist. The first one concerns Wits Golds Bloemhoek lease area. This area lies northof the down-dip extension from Beatrix North.Bloemhoek has an estimated probable reserve of5.4Moz at a head grade of 5.33g/t. Wits Gold is an exploration company at present although it has beenpressured by shareholders to execute on existing projects. The second option concerns Joel minebelonging to Harmony Gold. This ground lies east of South shaft.

At Beatrix however, there are effectively three companies with contiguous ground that offer potentialopportunities for corporate action. Management however does not expect any corporate action concerningKDC or Beatrix in the short to medium term.

EXHIBIT 33: Beatrix lease area and neighbours EXHIBIT 34: Driefontein lease area and neighbours

Sources: Sibanye Gold; BNP Paribas Cadiz Securities Sources: Sibanye Gold; BNP Paribas Cadiz Securities

HarmonysJoel mine

Wits Gold

AngloGoldWest Wits


24/40



Appendix 6: Potential upside

Based on our assessment of opportunities within and beyond the lease, we summarise the potentialreserves that we think are probable, apart from the current LoM plan. We also show the estimated annualproduction and start year.

EXHIBIT 35: Potential reservesSource Potential reserve Life (years) Annual production Start year

(koz) (koz)

Pillars 2,100 11.0 19,028 2015

Secondary reefs - - - -

KEA project 800 6.2 13,029 2017

D1 pillar 560 4.3 13,029 2017

Vlakpan 230 2.6 9,030 2021

Sources: Sibanye Gold; BNP Paribas Cadiz Securities

We estimate there is no less than 3.7m oz of potential reserves, assuming all the pillars that werepreviously removed can be brought back. These reserves are not expected to increase production, but tosustain it and potentially extend the current life of mine by no more than three years. We do not account

for potential reserves from secondary reefs which could further sustain production or extend life-of-mine.We do know that secondary reefs form part of the resources and inventory shown in EXHIBIT 26.

Management is prepared to mine secondary reefs at cost. We do not expect mining them will be valueaccretive to the business, but necessary to de-stress the mining of pillars below.

28Calculated using reserve over remaining Life of Mine for KDC

29Calculated based on 400kt pa at an average grade of 10g/t

3060kt pm(Beatrix CPR Report 2012), grade based on reserve grade of 3.9g/t at North Section


25/40



Appendix 7: Surface rock dumps

All three mines produce gold from surface rock dumps (SRD). This material should not be confused withlower grade tailings from processed ore. SRDs are waste material that has been stockpiled over the years.

The SRDs are expected to contribute 23% to group free cash in 2013 and therefore form an important partof the business, although we think this is often overlooked by the investor community. Below we assess theexpected life and profitability of the SRDs.

Kloofs SRD reserves are the largest in the group (66%), followed by Driefontein (27%) and Beatrix(7%).Total reserves are 520koz. The resources and reserves for SRDs are typically well defined since they lieon the surface and have recently undergone an intensive drilling campaign.

The profitability of these three operations all vary as a result of different head grades, production volumesand operating costs. Below we forecast key operating information for FY13.

EXHIBIT 36: SRDs key operating data for FY13FKloof Driefontein Beatrix

Tonnes ktpa 3,300 3,200 1,250

Head grade g/t 0.66 0.60 0.26

Ounces oz/a 47,622 40,129 5,305

Cash cost R/t 79 173 83

Cash cost R/kg 175,000 443,000 630,000

Sources: BNP Paribas Cadiz Securities; estimates based on current reserves; LoM plan and historical quarterly information

Additional capacity of 100kt pm is expected to be installed at Kloof by June 2013 and a further 40kt pm inFY14.This will boost total capacity by 28%.

Operations at Kloof are the most profitable, followed by Driefontein, while Beatrix is likely to be cashnegative from FY13. The differences here are largely a function of grade, and to a lesser extent, rockhardness. Below, we show expected production and the outlook for real free cash. Kloof has the largestreserves, largely as a result of a major sampling campaign. SRDs are expected to become fully depleted by2017.

EXHIBIT 37: LoM production from SRDs EXHIBIT 38: Real free cash from SRDs

Source: BNP Paribas Cadiz Securities Source: BNP Paribas Cadiz Securities

Sibanye expects real free cash from SRDs to more than halve by 2015 while the contribution to group freecash is expected to fall from 23% this year to 7% in 2015.

This is a result of two main reasons.

1 Grades from Kloof fall from 0.66g/t this year to 0.4g/t in 2015.2 Driefontein reserves become fully depleted by 2014.The contribution to the group rises y/y in 2013 as a result of higher capital budgeted for the undergroundoperations, as well as a lower spot gold price.

0

20

40

60

80

100

120

2012 2013E 2014E 2015E 2016E 2017E

(koz) Kloof Driefontein Beatrix

0

5

10

15

20

25

0

100

200

300

400

500

600

2012 2013E 2014E 2015E 2016E 2017E

(%)(ZAR m) Real free cash before tax

Contribution to group


26/40



The company intends replacing the cash flows from these operations with a new project to process surfacetailings. However, we dont think this project will be value accretive31.

Appendix 8: Tailings project

Management is considering two options for processing tailings.

Option 1: Last year Gold Fields and Gold One engaged in a joint venture study for developing a largescale surface reclamation plant to produce gold and uranium. Gold would effectively be processed fromSibanyes dumps and uranium from Gold Ones dumps. Results from a Scoping Study placed the capitalcost between ZAR8b and ZAR14b with a production rate of 4mt pm feed to produce an average of300koz Au eq. per annum over a 20-year life. The Scoping Study has been progressed to a Pre-feasibilityStudy with a focus to reduce capital costs. Management expects that the capital cost should not exceedZAR10b. This project, if executed, would make it the largest tailings facility in the world. Currently, ErgoMining, belonging to DRDGold, is the largest with a production rate just over 2mt pm.

Option 2:A smaller Pre-feasibility Study is being done to assess the viability of producing gold only fromKDCs 13 tailings dumps, and eventually from run-of-mine material as well. Management expects theproject will cost no more than ZAR6b for a 2.4mt pm processing plant. Operating costs are expected tobe less than ZAR100/t. Current resources are estimated at 372mt at an average grade of 0.32g/t32 togive about 3.7m oz gold. We estimate recoveries would be about 35% on average based on recoveriesachieved at Ergo. Hence potential reserves are estimated at about 1.3m oz.

Assumptions and results

Below we summarise the assumptions for each option. Our DCF valuation (at current prices and 10% realdiscount rate) results in a negative NPV for both options. Our NPV-neutral price is USD1,750/oz gold andUSD65/lb U3O8. Although both options are cash positive in the early years, gold grades begin to decline tobelow 0.3g/t. Recoveries could be enhanced by the use of ultra-fine grinding. This could reduce our break-even price from USD1,750/oz to between USD1,500/oz and USD1,600/oz.

EXHIBIT 39: Summary of Option 1 and Option 2 tailings projectOption 1 Option 2

Capacity mtpm 4 2.4

Recoverable reserves

Gold

Recovery % 35 35

g/t 0.32 0.32

moz 1.65 1.3

Uranium

Recovery % 80

kg/t 0.19

mkg 12.6

Capex ZARbn 9 5

Opex ZAR/t 100 60

NPV ZARm


27/40



Environmental challenges

As with DRDGold, mining surface dumps brings with it many environmental responsibilities and potentialresistance from lobby groups. The primary concerns with any mining dump are dust, uranium andcontamination of ground water. Preventative measures can be taken although often not enough is done.

In the case for the tailings project, material would be re-deposited from 13 dumps scattered around KDC toone mega deposition site at South Deep. This could be a net positive impact on the environment as long asthe new mega dump is built to a world-class standard.

Management will need a revised Record of Decision from government, which would allow them permissionto deposit sulphur rich, and uranium rich (in the case for Option 2) material on the new mega dump. Thiswill likely receive resistance from lobby groups.

Appendix 9: Current life-of-mine plans

To assist in our outlook for production, we consider the 2012 Competent Persons Reports prepared bymanagement at each mine. In EXHIBIT 40 we show the historical and planned head grades relative to thereserve grades. In EXHIBIT 41 we show historical and planned production tonnages. In EXHIBIT 42 we showhistorical and planned development. These plans do not include any potential upside from remnant pillarsor shaft pillars. Firstly, we make the following observations with respect to grades:

1

Head grades at all three mines have been trending down in line with reserve grades.

2 Head grades on average have been significantly lower than reserve grades.3 Planned grades however have been forecast to rise at all three mines. In addition, grades at Kloof and

Beatrix have been forecast to rise above reserve grades.

EXHIBIT 40: Head grades and reserve grades


Secondly, we make the following observations with respect to production tonnes:

1 Volumes have been trending downwards in line with declining development. This has resulted in lessface availability.

2 Planned volumes are expected to remain relatively steady.

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

(g/tonne) Kloof Driefontein

Beatrix Kloof reserve grade

Driefontein reserve grade Beatrix reserve grade Sibanye LoM Plan


28/40



EXHIBIT 41: Production tonnes (quarterly)


Thirdly, we make the following observations with respect to development metres:

Ore reserve development is a significant driver for production volumes and maintaining flexibility

33

.Although development continues to fall, production volumes have been forecast to remain steady atKloof, Driefontein and Beatrix. This could be possible a few years prior to closure of a mine where onlypre-developed ore reserves are mined, although the LoM plans extend beyond 2020.

EXHIBIT 42: Kloof historical development metres and tonnes


Based on the above, we have low confidence in the current LoM plans. We do not expect grades to riseabove reserve grades but we do expect them to remain at least steady. We expect volumes to continue to

fall if development continues to fall, as previously discussed.

In addition to falling development, tonnages have fallen as a result of a fall in the blast frequency from 1 in2 days to 1 in 4 days. This is largely a result of two factors: 1) less time at the stope face due to longertravelling times. 2) More time being spent on support activities (such as support) instead of stopingactivities. Management hopes to improve the blast frequency by extending shift hours and optimisingholiday periods. This will likely be difficult to negotiate with the labour unions.

33By flexibility we imply face availability as measured by the number of stopes/panels available to be mined at any time.

0

200

400

600

800

1,000

1,200

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

(tonnes) Kloof Driefontein Beatrix

Sibanye LoM Plan

0

200

400

600

800

1,000

1,200

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

(tonnes)(dev metres) Development metres Underground tonnes (000)

Sibanye Forecast


29/40



Appendix 10: Historical production

Gold production from KDC and Beatrix has been reduced from just over 3.1m oz in 2002 to 1.22m oz in2012(EXHIBIT 43). During this period there have been two rapid falls in production.

The first event occurred in 2008 as a result of power cuts and seismicity issues. Production fell from 2.4moz to 1.9m oz but did not recover thereafter.

The second event occurred last year as a result of prolonged labour unrest. This was a significant stressevent and we expect that some areas of the mines suffered a permanent loss of face availability. This hasalready been observed at Beatrix West which is now under consideration for closure.

We do not expect production in 2013 to recover to previous levels.

EXHIBIT 43: Historical gold production

Source: Gold Fields

Appendix 11: Production outlook

Management is currently reviewing the life-of-mine plans but intend on maintaining production at currentlevels of about 1.24m oz. We expect production to remain flat y/y in FY13 at about 1.22m oz, falling to 1.0moz by FY15 (EXHIBIT 44). We take note of the following in our forecasts:

New plans have yet to be fully developed and it is likely this will take two to three years to implement.The mining of pillars will likely result in small volumes over a long period, making no significant impactto overall production.

We expect it will take management at least two years to stabilise production in line with currentdevelopment rates.

Production from SRDs will reduce to one third within two years.

New projects within the lease are unlikely to provide any growth but rather replacement.

We dont expect any projects beyond the lease in the short to medium term. By 2017, new projects (namely Vlakpan, D1 shaft and KEA) can be expected to come online and

production should be sustained beyond what the current life-of-mine plan indicates.

We illustrate this in the chart below.

2.742.59

2.41

1.90 1.86

1.59

1.441.22

0.00

0.50

1.00

1.50

2.00

2.50

3.00

2005 2006 2007 2008 2009 2010 2011 2012

(moz)

strikes

power cutsseismicity


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EXHIBIT 44: Sibanye Gold Production Outlook


Appendix 12: Costs and capex

In our analysis of unit cash costs, BNP Paribas Cadiz use the following terms, defined as follows:

C1 = mining cash costs

C2 = C1 + corporate overheads + royalties

C3 = C2 + on-going capex34

C4 = C3 + net interest + social expenditure

C5 = C4 + exploration + project capital

EXHIBIT 45 shows C1 ZAR/tonne costs at KDCs underground operations since 2005. We compare this to a

steady-state operation (Barberton Gold Mine) as a benchmark measure for inflation. We also show KDCsadjusted costs. The adjusted costs assume the same level of inflation as Barberton, normalised for tonneson a 70% fixed, 30% variable basis

35. We show the compounded annual growth rates on EXHIBIT 45.

EXHIBIT 45: Historical C1 cash costs

Sources: Gold Fields; Pan African Resources; BNP Paribas Cadiz Securities

The normalised costs increased an average of only 10% pa. This compares well to the benchmark of 12%and suggests that the mines at KDC have done well to contain inflation.

34On-going capital= stay-in-business capital + ore reserve development capital

35Although the current fixed:variable split is closer to 80:20

0.0

0.5

1.0

1.5

2.0

2.5

2007

2008

2009

2010

2011

2012

2013E

2014E

2015E

2016E

2017E

2018E

2019E

2020E

2021E

2022E

2023E

2024E

2025E

2026E

2027E

2028E

2029E

(moz pa) Current LoM plan BNP case

0

500

1,000

1,500

2,000

2,500

3,000

Sep-05

Dec-05

Mar-06

Jun-06

Sep-06

Dec-06

Mar-07

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

(ZAR/tonne) Benchmark inflation KDC (unadjusted) KDC (normalised)

CAGR = 12% CAGR = 10%CAGR = 14%


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Actual C1 costs at KDC increased 14% pa. This is largely due to falling tonnages which have halved fromabout 1,800kt pa to 900kt pa over the same period. Other reasons include:

A high fixed-cost base which management has indicated has risen to as much as 80%. The high fixedcosts are largely due to pumping of water and maintaining the complex ore transport infrastructure atKDC.

Employee numbers have remained relatively static.This suggests the mines have not managed their production plans well. Redistribution of profits to GoldFields other operations instead of re-capitalising KDC and Beatrix would have been part of the reason.

Cost inflation

Below we show cost inflation for the main cost components as well as its relative contribution to totalcosts. Our assumptions for inflation rates are based on current actual and expected rates. Overall, weexpect inflation of no less than 9% pa for FY13, FY14 and FY15.

EXHIBIT 46: Cost breakdown and inflation ratesinflation rate pa % of costs

(%) (%)

labour + contractors 10 58

consumables 8 22

electricity 8 18

other 6 2

overall 9 100


Cost savings

Management intends cutting fixed costs by 20% in the next 18 months. This includes corporate overheadsand services (as a result of the unbundling) as well as at least 4,000 retrenchments, of which 3,000 havebeen achieved. Based on current cash costs of ZAR12b, this would equate to about ZAR1.8b. We estimatethat the following is achievable, broken down as follows:

ZAR750m for the retrenchment of 4,000 workers. ZAR50m in corporate overheads Total ZAR0.8bIn addition, Sibanye management intends removing some middle management employees that they believeare no longer needed. We do not expect this will fill the shortfall of ZAR1b.

At most, we expect no more than ZAR1b in cost reductions over the next 18 months.

EXHIBIT 47: C1 and C3 real cash costs BNP Best CaseCombined underground and surface 2013E 2014E 2015E

Kloof

C1 R/kg 258,761 260,841 248,663

C3 R/kg 376,464 397,558 362,891

Driefontein

C1 R/kg 294,862 285,409 260,266

C3 R/kg 369,059 363,849 358,242

Beatrix

C1 R/kg 314,567 327,727 328,050

C3 R/kg 413,702 413,715 413,431

Combined

C1 R/kg 285,461 285,612 270,283C3 R/kg 382,045 388,364 371,973


Real cash costs are expected to remain steady as a result of the cost savings as well as the mining of pillarsin 2015.


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Global cash costs

Below we show where Sibanye is positioned on the global C1 and C3 cash cost curves, relative to its peergroup. Sibanyes current C1 cash costs of USD1,073/oz positions it in the upper quartile of the cost curvealongside Harmony, and less favourably compared to Gold Fields and AngloGold Ashanti. However, C3 cashcosts are a lot more similar between the peer group, at between USD1,300/oz and USD1,400/oz.

EXHIBIT 48: Global C1 cash cost curve (current costs)

Sources: Brook Hunt; BNP Paribas Cadiz Securities

EXHIBIT 49: Global C3 cash cost curve (current costs)

Sources: Brook Hunt; BNP Paribas Cadiz Securities

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

0 10 20 30 40 50 60 70

(USD/oz)

oz Au per annum(m)

Harmony Sibanye AngloGold Ashanti Gold Fields

0

200

400

600800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

0 10 20 30 40 50 60 70

(USD/oz)

oz Au per annum(m)

Harmony Sibanye AngloGold Ashanti Gold Fields


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Capex

Below we show historical and forecast capex. Capex this year has been budgeted at ZAR3.2b. Based on thecurrent life-of-mine plan, capex is expected to fall to about ZAR1b by 2018 in line with falling development.

We expect current SIB capex numbers to remain steady in-line with maintaining development rates atcurrent levels. We factor in ZAR1b project capital for new projects from 2015 to 2017.

We also include the expected capital outlay for a potential new tailings project, equivalent to ZAR5b over

three years. We do not factor this into our models.

EXHIBIT 50: Real Capex Outlook


If management intends to keep production steady, capex will at least need to remain at about ZAR3b pa.Capex will likely grow even more to bring new projects into production.

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E

(ZAR b) Current LoM Plan BNP Case Tailings project

Tailings project?


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Appendix 13: Valuation

We adopt a real DCF method to estimate a 12-month target price. This valuation technique lends itself wellto gold companies in South Africa due to it being well established amongst the investment community aswell as the transparency from company management.

Model assumptions and inputs

We calculate the NAV for Sibanye Gold using the following key assumptions:

Spot gold of USD1,380/oz. Exchange rate of ZAR9.4/USD. Actual net debt of ZAR2.8b, as at April 2013. Real discount rate of 10%. Life of mine based on stated reserves, as well as the potential additional reserves of 3.7m oz. Additional project capital of ZAR1b real (based on Pre-feas estimates for the KEA project). A starting period of FY13.We do not include the valuation for the tailings project since the results are NPV negative based on currentassumptions and prices.

Management has indicated that all the Environmental Rehabilitation Trusts are fully funded.

In our assessment of life of mine, future expected grades, tonnages, expected ramp-up time and capitalcost, we have taken cognisance of management guidance and conversations with the CFO and MRMmanager.

Other cost assumptions:

Below we show the royalty rates and taxes which we incorporate into our DCF valuation. Royalties and

taxes for South Africa are formula based:

Royalty rate= 0.5 + EBIT/(Revenue x 12.5)%

Tax rate = 34 -170/x, where x = taxable income/revenue

Results

We value Sibanye Gold at ZAR7.00/share broken down as follows:

Driefontein: ZAR6.10/share Kloof: ZAR4.50/share Beatrix: ZAR0.3/share Net debt: ZAR3.8/shareOur valuation based on the current LoM plan is ZAR11/share.


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EXHIBIT 51: Valuation of Sibanye Gold for BNP Case and based on current life of mine plan


The majority of our valuation lies with Driefontein (56.3%), followed by Kloof (43.4%) while Beatrix holds novalue at all (0.4%).

EXHIBIT 52: NPV of Kloof, Driefontein and Beatrix


Below we show our progressive NPV for each case.

EXHIBIT 53:A forward view of Sibanye's NPV

Source: BNP Paribas Cadiz Securities estimates

7.0

11.0

6.1

4.5

0.3

3.8

0

2

4

6

8

10

12

Driefontein Kloof Beatrix Net debt BNP Case Current LoMCase

(ZAR/share)

Kloof41.2%

Driefontein55.9%

Beatrix2.9%

(2,000)

0

2,000

4,000

6,000

8,000

10,000

12,000

2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F

(ZAR m) BNP CASE Current LoM


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Financial statementsSibanye Gold Ltd

Profit and Loss (ZARm) Year Ending Dec 2011A 2012A 2013E 2014E 2015ERevenue - 16,554 16,623 14,813 15,074

Cost of sales ex depreciation - (10,874) (11,837) (12,086) (12,681)

Gross profit ex depreciation - 5,680 4,787 2,727 2,393

Other operating income - 0 0 0 0

Operating costs - (403) (966) (322) (339)

Operating EBITDA - 5,277 3,821 2,405 2,054

Depreciation - (2,363) (2,291) (2,333) (2,371)

Goodwill amortisation - 0 0 0 0

Operating EBIT - 2,914 1,530 73 (318)

Net financing costs - (21) (359) (393) (478)

Associates - 93 0 0 0

Recurring non operating income - 0 0 0 0

Non recurring items - (373) 0 0 0

Profit before tax - 2,613 1,171 (320) (795)

Tax - 366 (330) 0 0

Profit after tax - 2,979 842 (320) (795)

Minority interests - 0 0 0 0

Preferred dividends - 0 0 0 0Other items - 0 0 0 0

Reported net profit - 2,979 842 (320) (795)

Non recurring items & goodwill (net) - 372 0 0 0

Recurring net profit - 3,350 842 (320) (795)

Per share (ZAR)

Recurring EPS * - 4.59 1.15 (0.44) (1.09)

Reported EPS - 4.08 1.15 (0.44) (1.09)

DPS - 0.09 0.29 0.00 0.00

Growth

Revenue (%) - - 0.4 (10.9) 1.8

Operating EBITDA (%) - - (27.6) (37.1) (14.6)

Operating EBIT (%) - - (47.5) (95.3) (538.1)Recurring EPS (%) - - (75.0) (138.0) 148.5

Reported EPS (%) - - (71.8) (138.0) 148.5

Operating performance

Gross margin inc depreciation (%) - 20.0 15.0 2.7 0.1

Operating EBITDA margin (%) - 31.9 23.0 16.2 13.6

Operating EBIT margin (%) - 17.6 9.2 0.5 (2.1)

Net margin (%) - 20.2 5.1 (2.2) (5.3)

Effective tax rate (%) - (14.0) 28.1 - -

Dividend payout on recurring profit (%) - 2.0 25.0 - -

Interest cover (x) - 140.5 4.3 0.2 (0.7)

Inventory days - - 0.0 0.0 0.0

Debtor days - - 12.6 14.9 15.1

Creditor days - - 0.0 0.0 0.0Operating ROIC (%) - - 4.7 0.2 (0.7)

Operating ROIC - WACC (%) - - - - -

ROIC (%) - - 4.4 0.2 (0.7)

ROIC - WACC (%) - - - - -

ROE (%) - - 6.3 (2.0) (4.6)

ROA (%) - - 5.0 (0.3) (1.8)

*Pre exceptional, pre-goodwill and fully diluted

Sources: Sibanye Gold; BNP Paribas estimates


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Sibanye Gold Ltd

Cash Flow (ZARm) Year Ending Dec 2011A 2012A 2013E 2014E 2015ERecurring net profit - 3,350 842 (320) (795)

Depreciation - 2,363 2,291 2,333 2,371

Associates & minorities - 0 0 0 0

Other non-cash items - 0 0 0 0

Recurring cash flow - 5,713 3,133 2,013 1,576

Change in working capital - 21 49 13 30

Capex - maintenance - (3,083) (3,264) (3,435) (3,578)

Capex - new investment - 0 0 0 0Free cash flow to equity - 2,651 (83) (1,409) (1,971)

Net acquisitions & disposals - 0 0 0 0

Dividends paid - (731) (210) 0 0

Non recurring cash flows - 0 0 0 0

Net cash flow - 1,920 (293) (1,409) (1,971)

Equity finance - 0 0 0 0

Debt finance - (1,991) 346 82 1,477

Movement in cash - (71) 53 (1,327) (494)

Per share (ZAR)

Recurring cash flow per share - 7.83 4.28 2.75 2.15

FCF to equity per share - 3.63 (0.11) (1.92) (2.69)

Balance Sheet (ZAR m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E

Working capital assets - 1,455 1,504 1,516 1,546

Working capital liabilities - 2,063 2,063 2,063 2,063

Net working capital - 3,518 3,566 3,579 3,609

Tangible fixed assets - 16,376 19,640 23,075 26,652

Operating invested capital - 19,894 23,207 26,654 30,261

Goodwill - 0 0 0 0

Other intangible assets - 0 0 0 0

Investments - 0 0 0 0

Other assets - 1,354 1,354 1,354 1,354

Invested capital - 21,248 24,561 28,008 31,616

Cash & equivalents - (512) (565) 761 1,256

Short term debt - 2,220 2,000 2,000 2,000

Long term debt * - 2,000 2,000 3,000 4,000

Net debt - 3,708 3,435 5,761 7,256Deferred tax - 4,186 4,186 4,186 4,186

Other liabilities - 0 0 0 0

Total equity - 11,598 15,184 16,305 18,418

Minority interests - 0 0 0 0

Invested capital - 21,248 24,561 28,008 31,616

* includes convertibles and preferred stock which is being treated as debt

Per share (ZAR)

Book value per share - 15.89 20.72 22.25 25.13

Tangible book value per share - 15.89 20.72 22.25 25.13

Financial strength

Net debt/equity (%) - 32.0 22.6 35.3 39.4

Net debt/total assets (%) - 18.8 14.9 22.9 25.6

Current ratio (x) - 12.5 (33.1) (12.1) (4.6)

CF interest cover (x) - 124.9 0.8 (2.6) (3.1)

Valuation 2011A 2012A 2013E 2014E 2015E

Recurring P/E (x) * - 1.6 6.5 neg neg

Recurring P/E @ target price (x) * - 1.5 6.1 neg neg

Reported P/E (x) - 1.8 6.5 neg neg

Dividend yield (%) - 1.2 3.9 0.0 0.0

P/CF (x) - 1.0 1.7 2.7 3.5

P/FCF (x) neg 2.1 (66.0) (3.9) (2.8)

Price/book (x) - 0.5 0.4 0

Documents

Sibanye Gold - BNP Cadiz Initiating Report