Stock Analysis & Ideas

Sibanye Stillwater: Changing Its Acquisition Strategy

Sibanye-Stillwater (SBSW) is a South African-based diversified metals mining house. The company is known for its exploits in platinum, as it produces the most in platinum group metals in the world. I am bullish on the stock.

Exchanging Copper for Platinum

The South African mining giant was near completion of a $1 billion copper deal that would’ve seen it close on the Santa Rita and Serrote copper mines in Brazil. However, after further analysis by Sibanye’s management team, it decided not to commence with the process.

According to the firm’s management: “We assessed the event and its effect and has concluded that it is and is reasonably expected to be material and adverse to the business, financial condition, results of operations, the properties, assets, liabilities or operations of Santa Rita.”

Ever since the deal had collapsed, Sibanye has chosen to deploy a portion of the capital elsewhere. It’s expected that the firm will snap up 50% stakes in Kroondal and Marikana platinum mines in Rustenburg, South Africa. The mines will be acquired from Anglo American Platinum for a mere one South African Rand, although Sibanye will need to carry a proportionate amount of the liabilities as well as commit R415 million (~$27.7 million) towards land rehabilitation.

The Kroondal project is expected to deliver 1.34 million ounces of platinum concentrate with a life expectancy ending in 2029, and it’s understood that the Marikana mine is still subject to a final geophysical report as it’s been under maintenance since 2012.

Market Outlook

The market’s reacted well to the news, and Sibanye’s stock is currently up by nearly 7% ever since the sequence of events occurred. I see the change in acquisition strategy as a massive plus for the stock because it brings with it fewer loose ends by focusing on the company’s development as an almost platinum pure-play.

In addition, less stress will be placed on the mining company’s balance sheet; forking out $1 billion for a distant project would’ve taken some time to validate, and I don’t think the market would’ve taken particularly kind to it.

The stock market remains receptive to precious metals stocks. There seems to be a lag in last year’s surging metals prices and the sector’s stock prices. Sibanye is currently undervalued by 89.5% relative to its five-year average price-to-sales ratio and by 91.6% on a price-to-cash-flow basis.

Wall Street’s Take

Turning to Wall Street, Sibanye-Stillwater has a Strong Buy consensus rating, based on four Buys assigned in the past three months.

The average Sibanye Stillwater price target of $20.13 implies 22.6% upside potential.

Concluding Thoughts

Sibanye is on a better trajectory after choosing to opt for another platinum acquisition spree in South Africa rather than a Brazillian mega-deal. The stock has been well received by the market during the past month and could experience further gains amid attractive valuation metrics.

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