Sibanye Gold Is a Bad Bet Despite Improving Gold Prices

Sibanye Gold (NYSE: SBGL) stock has the gold price rally to thank for its impressive rise in 2019. Sibanye stock has shot up more than 75% so far this year despite facing challenges at its mine in South Africa that’s crippled production.

The problems at Sibanye were on display when the company released its results for the first half of 2019 recently. The five months of strike in South Africa pushed Sibanye to a loss of $17 million in the first six months of the year as compared to a profit in the year-ago period. On a per share basis, Sibanye delivered a loss of $0.54 per share as compared to a profit of $0.04 per share in the year-ago period.

So, there was not much to like about the company’s latest performance. However, Sibanye expects a turnaround in the second half of the year. But should investors keep betting on the company in light of the bottlenecks it has faced in South Africa?

Sibanye is in a mess

Sibanye witnessed a massive decline of 47% in its adjusted EBITDA during the first six months of the year. This was the result of a 42% decline in the company’s bullion output.

The company now claims that its performance in the second half of the year will be better, but there’s a possibility that Sibanye won’t be able to walk the talk because the South African miners might not be letting up their demands any time soon.

According to a Reuters report:

“We are utterly disappointed with the offer at Sibanye-Stillwater Lonmin,” Joseph Mathunjwa told a news conference, describing the offer as a “slap in the face”.

Mathunjwa said that workers at Lonmin had been offered annual wage increases of 300 rand ($19.55) for the first year, 350 rand for the second year and 400 rand for the third year, lower than other miners in South Africa.

“We feel that Sibanye is trying to provoke us into a strike,” Mathunjwa said. “We haven’t declared a strike yet …we are still negotiating.”

So if the workers go on a strike once again, Sibanye’s promised improvements in the second half of the year won’t arrive.

Don’t expect a turnaround

For the second half of the year, Sibanye expects to produce around 514,000 ounces to 546,000 ounces of gold at all-in sustaining costs of $1,400 an ounce. This makes it clear that Sibanye is not in a great position to take advantage of the strong gold pricing environment.

The yellow metal is currently trading at more than $1,500 an ounce, but if Sibanye’s problems in South Africa persist, it will continue to incur losses and fail to benefit from higher pricing.

As such, it would be a good idea for investors to look elsewhere to take advantage of improving gold prices as Sibanye’s rally might fizzle out in the coming months thanks to the problems highlighted above.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan
Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.

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