Sibanye Stillwater: Bet On Growing PGM Deficit (Rating Upgrade)

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The PGM market is showing signs of improvement. Major automakers announced their intentions to keep ICE production for the foreseeable future.SBSW 2023 results are promising, considering the PGM bear ...

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Major automakers announced their intentions to keep ICE production for the foreseeable future.SBSW 2023 results are promising, considering the PGM bear ...</p>\n\n<a href=\"https://seekingalpha.com/article/4683200-sibanye-stillwater-bet-on-growing-pgm-deficit-rating-upgrade\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Sibanye Stillwater: Bet On Growing PGM Deficit (Rating Upgrade)</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSibanye Stillwater: Bet On Growing PGM Deficit (Rating Upgrade)\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-04-11 10:39 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4683200-sibanye-stillwater-bet-on-growing-pgm-deficit-rating-upgrade><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>The PGM market is showing signs of improvement. Major automakers announced their intentions to keep ICE production for the foreseeable future.SBSW 2023 results are promising, considering the PGM bear ...</p>\n\n<a href=\"https://seekingalpha.com/article/4683200-sibanye-stillwater-bet-on-growing-pgm-deficit-rating-upgrade\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"SBSW","symbol_name":"Sibanye Gold Limited","start_time":0,"source_url":"https://seekingalpha.com/article/4683200-sibanye-stillwater-bet-on-growing-pgm-deficit-rating-upgrade","article_id":"2426408339","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/103967142/image_103967142.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2426408339","pubTimestamp":1712803166,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"The PGM market is showing signs of improvement. Major automakers announced their intentions to keep ICE production for the foreseeable future.SBSW 2023 results are promising, considering the PGM bear ","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"SBSW":"Sibanye Gold Limited","BK4099":"汽车制造商","BK4555":"新能源车","BK4588":"碎股","IMPUY":"Impala Platinum Holdings Ltd.","PGM":"铂金ETN-iPath","BK4585":"ETF&股票定投概念","TM":"丰田汽车","03160":"华夏日股对冲","NPTLF":"NORTHAM PLATINUM HLDGS LTD.","BK4188":"贵重金属与矿石","ANGPY":"Anglo American Platinum Ltd."},"translate_title":"Sibanye Stillwater：押注PGM赤字增长（评级上调）","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"ANGPY":1,"IMPUY":1,"NPTLF":1,"PGM":1,"SBSW":1,"TM":0.67,"03160":0.6},"content_text":"The PGM market is showing signs of improvement. Major automakers announced their intentions to keep ICE production for the foreseeable future.SBSW 2023 results are promising, considering the PGM bear market. The company took successful cost-cut measures, resulting in $375 million savings.SBSW maintains its balance sheet with ample liquidity and a prudent capital structure. The company holds $1,397 billion in cash and owes $1,363 in long-term debt.With higher gold and PGM production figures in FY24 and stronger spot prices, SBSW's profitability will recover.PGM miners are cheap, but SBSW is dirt cheap. I give SBSW a Buy rating.   mathieukorNote: I previously covered Sibanye Stillwater (NYSE:SBSW) in November 2023. I discussed PGM's declining supply and rising demand. SBSW is an excellent way to bet on that. I dissected company operations: platinum mining in South Africa, its US recycling business, and DRD Gold ownership. Despite the weak PGM market, SBSW keeps a strong balance sheet with ample liquidity. At that time, I concluded it was too early to buy; I gave SBSW a Hold rating. Over the past few months, I have diligently monitored the PGM market, and I am now confident that the time is ripe. In today’s article, I will review SBSW's latest results and the platinum market and subsequently update the company’s valuation and rating. To clarify for readers: 2E means platinum + palladium; 3E means 2E + rhodium; 4E means 3E + gold; 6E means 4E + osmium + ruthenium. PGM market update The PGM (platinum group metals) market has been challenging over the last several months. However, in the previous weeks, the tide seems to be turning. The BEV (battery electric vehicle) craze is cooling down. Auto manufacturers are realizing that the old ICE will stay for longer. Mercedes, GM, Toyota, and others announced that they will keep their ICE production lines for the foreseeable future. In other words, the demand for PGM is here to stay. Globally, PGM production is expected to slow down. High-cost operations in South Africa have been closed, and Eskom power curtailments are adding more strain to the mining and refining industry in South Africa. The PGM deficit will become more pronounced in the coming years, as seen in the chart below from the SBSW 2023 presentation. SBSW 2023 presentationFollowing the BEV's overt enthusiasm, PGM's sentiment has been extremely bearish, depressing its prices to new lows. However, the automakers' press releases grabbed investors' attention, resulting in the recovery of PGM prices. The chart below shows that platinum and palladium prices gained traction over the last several weeks. KoyfinThe gold price has quietly surprised most investors. At this point, I expect commodity traders seeking exposure to precious metals to move on PGMs, seeking better relative value. In conclusion, I am bullish on the PGM group. I started to build a position with a few miners, and SBSW is one of them. 2023 results review In 2023, the declining PGM prices pressed SBSW to take cost-saving measures. The table below shows the timeline of the measures. SBSW 2023 presentationThe total benefit of cost-saving measures is $375 million. For comparison, SBSW generated a $678 operating cash flow in 2023, holding $1,397 million. So, the measures are worthwhile. 57% of the sales come from PGM mining, 22% from gold mining, and 20% from scrap recycling. Geographically, the sales are divided between South Africa (65%), the US (32%), Europe (2%), and Australia (1%). The table below presents SBSW results by segment for 2023 and 2H23. SBSW 2023 presentationDespite the weak PGM prices, SBSW avoided losses on an annual basis across its PGM segments (measured with adjusted EBITDA). Its US operations delivered $35 million adjusted EBITDA and realized production growth by 1.4%. 2E AISC costs increased by 18.6%. SBSW SA (South Africa) 4E division kept its annual production stable. 4E AISC dropped to $1,089/oz. The division realized a $958 million adjusted EBITDA. SA gold mining scored considerable production growth by 34%. On the other hand, gold AISC dropped by $506/oz to $1,904/oz. Gold mining delivered $193 million adjusted EBITDA in 2023. SBSW reached a total of 4E AISC at around $1,084/oz. YoY, this is a 4% increase compared to 2022. The company effectively managed its operational schedule (for its South African processing plants), considering Eskom load curtailment, and maintained zero inventory growth. SBSW has operations in Australia (zinc retreatment), France (nickel refining), and Finland (Keliber lithium mine). The first two operations generate less than 5% of the company’s revenue, while Keliber is still in the project phase. It is worth mentioning SBSW uranium resources. I confess I missed the initial bull run in uranium. However, the potential for triple-digit uranium prices is far from exhausted. Having 59 million pounds of uranium resources at this point may turn into an extremely valuable asset. 32 million pounds are in Cooke tailings, and another 27 million pounds are in the Beisa uranium mine. To estimate the value of uranium resources, I use the imperfect yet good enough approach: Resource Value = Resource Base * (Spot price—AISC). I assume AISC is $60/lb, and the uranium sport price is $90/lb. So, the value of 59 million pounds is $1.77 billion, or 45% of the SBSW market cap on April 10, 2024. I used conservative figures for the inputs, AISC in the higher percentile and a spot price below $100/lb. 2024 guidelines For 2024, SBSW shares its guidelines below. SBSW 2023 presentationUS 2E production is expected to reach 440-460 koz at AISC, which is between $1,365 and $1,425/oz. The US recycling segment is projected to increase its output to 350,000 oz or 12% higher than the 2023 figures. SA Gold production is expected to grow to 627-659 k oz (excluding DRD production). AISC is expected to remain between $1,955-$2,133/oz. With gold spot prices above $2,300, SBSW's gold mining division will become more profitable in 2024. It is worth remembering that 1Q24 for the gold miners is historic because it is the full first quarter with a gold price above $2,000/oz. SA 4E output is expected to grow by 8%- 12% compared to 2023 figures. 4E AISC is projected to be between $1,245 and $1,285/oz, almost 20% higher than the 2023 AISC. Financials The table below shows the SBSW income statement for 2023. SBSW 2023 presentationIn FY23, the company delivered $6,172 million in revenue and $1,116 million in adjusted EBITDA. In 2022, SBSW realized $8,448 in revenue and $2,510 EBITDA. The prime reason for the decline in YoY revenues is weaker PGM prices. A robust gold market partially offsets its impact. SBSW reported a net loss of $2,065 million in 2023. The cash flow statement shows that SBSW generated $678 million in operating cash flow in 2023 compared to $1,470 million in 2022. SBSW distributes dividends based on its normalized earnings. Considering the net losses, the company canceled the dividends for 2H23. Compared to Anglo American Platinum (OTCPK:ANGPY) and Impala Platinum (OTCQX:IMPUY), SBSW distributed dividends with higher yields while maintaining a healthy payout ratio of 55%. KoyfinWith an improved PGM market and gold above $2,300/oz, I expect robust 1Q24 figures, resulting in recovered net earnings and dividend payments. SBSW maintains a sound balance sheet. The company reported $1,397 million in cash, $1,363 million in long-term debt, and $2,242 in total debt. In 2023, the company generated an operating loss of $2,177 million. Over the same period, it incurred $60 million in net interest expenses. Let’s not forget the robust FY23 operating cash flow of $678 million and more than $1 billion in cash reserves. So, I am confident that SBSW can easily cover its debt obligations. SBSW debt amortization schedule is shown below. SBSW 2023 presentation2024, a $216 million (R4,000 million) revolving credit facility will mature. The next maturity is $676 million bonds in 2026. A few days after I published my article on SBSW, the company announced that it raised $500 million in convertible bonds with a coupon of 4.25% and maturity in 2028. The proceeds were used to acquire Reldan, a US-based metal recycler with operations and JVs in Mexico and India. Reldan EV was estimated at $211 million. The deal's completion was announced on March 15, 2024, for $155.9 million cash consideration. Valuation The table below compares SBSW with its 10Y average figures, Global Materials, and Global Equity. KoyfinSBSW EV multiples are at the lower percentile against the company’s 10Y averages. Compared to Global Materials and Global Equity, the SBSW falls in the cheaper percentile, too. The downside risk is relatively low at such depressed valuations because all nightmare scenarios are calculated in the price. Let’s not forget that the market discounts investors’ expectations, not the facts. So, the majority admits that PGM mining is dead, resulting in extreme devaluation of PGM miners. How SBSW fairs against its direct competitors, IMPUY, ANGPY, and Northam Platinum (OTCPK:NPTLF)? Seeking AlphaWhen I published my last take on SBSW, the company traded at 2.2 TTM EV/Sales and 0.8 TTM EV/EBITDA. Today, it is even cheaper at 0.78 TTM EV/Sales. SBSW is absurdly cheap, even compared to other PGM miners. Taking the FWD EV multiples, the situation is the same; SBSW resides at the bottom. Investors Takeaway I believe the tide has turned for PGMs. SBSW is an excellent company to bet on the PGM deficit. As with every thesis, risks come regardless of how firm my conviction is and how cheap the stock is. SBSW carries a few pronounced risks: being in South Africa, declining PGM prices, and financial risk. SBSW manages its liquidity well, even in a steep bear market. The company keeps cash reserves exceeding $1 billion while owing around $60 million net interest expenses annually. South Africa is passing through a deep economic and social crisis. On May 29, 2024, are coming General Elections. Their outcome will be decisive for South Africa's future. PGM prices may fall further if we have a sudden supply glut, a cheaper alternative to PGM is announced out of the blue, or automakers turn again on BEV. Lifting sanctions on Russia may cause a supply glut, but it is a low-probability scenario. If that happens, PGM prices will fall even more. I classify this scenario as possible but not probable. I expect the sanctions on Russian entities to extend and to involve more companies and individuals. A viable alternative for PGM is not impossible to find. However, the time between the R&D stage and implementation is much longer than expected. It takes years from the discovery to the adoption and integration phase. I believe the automakers will follow Toyota’s path, focusing on hybrids. In conclusion, the demand for PGMs most likely will persist.  I have SBSW and another platinum miner in my portfolio. SBSW has shown its ability to weather adverse markets. With higher gold and PGM production figures in FY24 and stronger market prices, SBSW's profitability will recover. I upgrade the SBSW rating from Hold to Buy.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2426408339"}