Sibanye Stillwater Stock: A Contrarian Bet On PGMs Revival; Rating Unchanged

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Sibanye Stillwater's 1H24 results show increased PGM production but lower prices and higher costs, leading to a 53% drop in adjusted EBITDA.Sibanye has improved its debt profile with new credit ...

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In the article, I pointed out the changes in the platinum market and discussed Sibanye's financials, operations, and growth potential. I believe the tide has turned for PGMs. SBSW is an excellent company to bet on stronger PGM prices. When I published my last take on SBSW, the company traded at 0.78 EV/Sales and 4.1 EV/EBITDA. SBSW was absurdly cheap, even compared to other PGM miners. At that time, I upgraded the company's rating to a Buy. In today's article, I cover 1H24 results, new credit facilities, and Sibanye's rating. Sibanye Stillwater overview Sibanye remains one of my tough calls. Since my write-up in April, its share price has been extremely volatile. I am still holding my thesis on the company. Moreover, I like its exposure to lithium and its uranium resources. The last few weeks brought news about SBSW's improved balance sheet and further cost-saving measures. Meanwhile, the South African political landscape has changed. For the first time since the 1994 election, the ANC has not won with an absolute majority. The present government is a coalition of the ANC and DA. I believe this is positive for the country's business environment. Let's look at 1H24 results. Operations update More than 50% of SBSW sales come from PGM mining in South Africa and the US. 22% are attributed to gold mining, and 20% are from scrap recycling. SBSW operates the Sandoville nickel refinery, which contributes about 2% to the company's revenue. Let's examine SBSW's operating results. The table below from the 1H24 report shows SBSW's performance by division. SBSW 1H24 Note for readers: 2E means platinum + palladium, 3E means 2E + rhodium, 4E means 3E + gold, and 6E means 4E + osmium + ruthenium. PGM production increased across the US and South African mines. The South African PGM division delivered 828,460 oz in 1H24, 3.6% higher than in 1H23. AISC grew by $67/oz YoY. The 4E basket price for 1H24 was $1,309/oz, almost 30% lower than the 1H23 figure. Higher AISC and lower realized sale prices led to an adjusted EBITDA contraction of 60%. US 2E production increased to 238,139 oz in 1H24 from 205,513 oz in 1H23. AISC declined by 24% YoY to $1,343 in 1H24. 2E basket prices were under pressure, reaching $977/oz in 1H24, resulting in a $27 million adjusted EBITDA for the US PGM mining segment. On September 13, SBSW announced 700 layoffs expected later this year in its Stillwater mine in Montana. Palladium prices have been too low for a long time. Below is a quote from Executive Vice President Kevin Robertson about the layoffs: \"We believe Russian dumping is a cause of this sharp price dislocation,\" he wrote. \"Russia produces over 40% of the global palladium supply, and rising palladium imports have inundated the U.S. market over the last several years.\" Russia has been the driving factor for lower palladium prices. Over the last several quarters, it sold a large portion of its inventories, depressing further palladium prices. Unlike PGMs, gold reached an ATH, north of $2,600/oz. The last nine months were the first in gold mining history when the gold price was above $2,000/oz for this amount of time. SBSW's gold division performance reflects that. Year over year, output declined from 416 k oz in 1H23 to 344 k oz in 1H24. AICS also increased by 14% YoY, reaching $2,078/oz in 1H24. The Kloof 4 shaft closure is a reason for increased AISC. Strong gold prices partially offset declining production and higher AISC. The South African gold division reported a $117 million adjusted EBITDA, 7% lower than 1H23 figures. An extended period of low PGM prices led to another quarter of net losses. Three factors contributed to declining profitability: low PGM prices, cost inflation, and increased CAPEX at the Keliber project. SBSW adjusted EBITDA decreased by 53% to $355 million in 1H24. Depressed PGM prices pushed SBSW to close a few mines to reduce operating expenses. In 2023, the company closed the Beatrix 4 Shaft and Kloof 4 Shaft, leading to $128 million in annual benefits. In February 2024, SBSW suspended the Simunye Shaft and 4 Belt Shaft. The Kloof 2 processing plant was closed in April 2024, resulting in $73 million in benefits. SBSW has a tradition of distributing dividends. The company returns at least 25% to 35% of normalized earnings to shareholders. Sibanye will not distribute dividends for 2Q24 due to a normalized earnings loss of $11 million in 1H24. Sibanye Balance sheet The balance sheet is a critical prerequisite for survival for any business, especially for companies potentially in distress, like Sibanye. SBSW reported $855 million cash, $1,412 million inventories, and $2,076 million total debt. The company has 81% Total Debt/Equity and 65% Total Liabilities/Total Assets. For 2Q24, SBSW reported $108 million operating cash flow and $16.3 million operating income. Over the same period, gross interest expenses were $48 million. In summary, Sibanye's balance sheet is good enough to guarantee its survival in my view. On August 22, the company announced it had executed a €500 million Green Loan Facility for its Keliber lithium project. The proceeds will fund the construction of SBSW's mining, processing, and refining facilities in Finland. Amortizing repayment profile tied to projected project's cash flows, with ultimate maturities of 7 to 8 years. On August 21, SBSW announced a R6 billion (US$340 million) revolving credit facility (RCF). Below are the RCF details provided in the press release.  • A principal amount of R6 billion, including an option for Sibanye-Stillwater to increase the rand RCF by a further R1 billion later during the term through the inclusion of additional lenders • The facility maturity is three years, including an option to extend the facility, tenor, through two further one-year extensions at the request of Sibanye-Stillwater • The interest margin is based on a sliding scale between Jibar* plus 2.20% and 2.80%, dependent on leverage  SBSW cleverly used strong gold prices to its advantage. The company secured an R1.8bn gold prepayment deal. The deal states that SBSW must deliver 1,497 kg of future gold production in equal monthly tranches for upfront cash. The proceeds will be used to cover its current debt obligations. Gold price as part of gold prepayment deal terms has a floor of R1,350,000/kg and a cap price of R1,736,000/kg. At the current FX rate, the figures are $77,620/kg floor price and $99,810/kg cap price. Today's gold price is $2,655/oz, and one kilogram of gold is $85,637. So, the cap price provides 16% upside potential. SBSW significantly improved its debt profile. The chart below from the 1H24 presentation shows the company's debt repayment schedule. SBSW 1H24 report Debt maturities are well distributed in the coming years. SBSW has a net debt of $1.0 billion and $1.4 billion in inventories. In the worst-case scenario, the company may liquidate some of its stocks to cover its obligations. SBSW stock valuation SBSW trades at attractive multiples, 0.7 EV/Sales and 4.5 EV/EBITDA. Figures are NTM. Koyfin Anglo American Platinum Limited (OTCPK:ANGPY) and Impala Platinum Holdings Limited (OTCQX:IMPUY) have attractive multiples, too. Nevertheless, the companies have different business models. SBSW has the most diversified operations, given its presence in the US, and its stake in DRD Gold, lithium assets, and uranium resources. Anglo and Impala have operations only in South Africa, and they mine predominantly 3E (platinum, palladium, and rhodium). Financially, all three companies are sound, with adequate liquidity and total debt/equity below 100%. Despite that, investors almost treat SBSW as a company in bankruptcy, discounting its strengths. At the current valuation, SBSW is an excellent buy. Risks Sibanye brings a few significant risks: the South African situation, PGM prices, and company financials. South Africa is still far from economic recovery. Nevertheless, the political winds have changed. The new government coalition between ANC and DA is a positive indicator for a better future. An improved political environment with less racial and populist division would improve business conditions. Despite its US operation, the majority of SBSW assets are in South Africa. Therefore, the company would benefit from better business conditions. PGMs have been among the most shorted commodities. Russia's flood of the market with its palladium did not help, either. Meanwhile, PGM demand is back, given major automakers' press releases. EVs will be replaced by hybrid vehicles. So, platinum, palladium, and rhodium will stay in demand. Sibanye's financials are not as bad as they seem at first glance. The company keeps massive cash reserves and inventories. In an emergency, it can use them as a spare firepower. Moreover, mine closures pay off by reducing operating expenses. Investors Takeaway Sibanye has a place in my speculative portfolio. The company brings exposure to one of the most contrarian thesis, PGM resurrection. There are a few reasons to like SBSW. One is the Keliber project. No one likes lithium now, so it is time to look for lithium ideas. Here comes SBSW with its lithium assets in Finland. The company reported progress with Keliber Lithium Refinery, and the first output is expected in 2025. Uranium resources also represent an exciting opportunity. I am looking forward to seeing how SBWS will play them.  In summary, SBSW is a speculative position, not for fainthearted investors. I give SBSW a Buy rating.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":0},"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":"4.28.3","shortVersion":"4.28.3","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/2469133124"}