Stock Analysis & Ideas

Sibanye-Stillwater: Worker’s Strike Stock Sell-off Overdone

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

Operational Delays

Sibanye’s gold mining operations in South Africa have halted as workers began a strike after rejecting the company’s offered wage deal. The labor unions want an increase of $65 in monthly wages for the company’s gold mine workers, which is aligned with Harmony Gold’s (HMY) deal from a year ago. However, Sibanye is only willing to increase wages by $46 per month as it sees the workers’ and union demands as unrealistic.

According to the company’s CEO, Neal Froneman, “Wage increases that are higher than inflation are not sustainable and cannot be considered.” He went on to add that “the strike will jeopardize the sustainability of our gold operations and, ultimately, their futures.”

What Comes Next for SBSW?

While the recent sell-off in valuation isn’t encouraging, it is important to recall that this is not the first time Sibanye is facing a worker’s strike. In 2019, its Beatrix gold mine was shut for five months due to similar causes, ending with a compromised deal.

Furthermore, Sibanye’s Gold operations only make up 9.8% of its EBITDA mix, and rising platinum, palladium, and rhodium prices will likely soften any income statement backdrops.

In comparison to its sector peers, Sibanye’s stock is still tremendously undervalued with its price-to-earnings and price-to-cash flow ratios trading at 60.31% and 30.72%, respectively. In addition, the stock has formed a momentum pattern amid rising metals prices, and is now trading above its 50-, 100-, and 200-day moving averages.

Wall Street’s Take

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

The average Sibanye Stillwater price target of $23.25 implies a 12-month 31.36% upside potential.

Concluding Thoughts

Union strikes aren’t anything unprecedented in the mining space. Investors usually price these kinds of risks into mining stocks before they invest in them. I firmly believe that the Sibanye stock drawdown is overdone and will correct soon.

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