Sibanye-Stillwater Stock Can Deliver More Upside This Year

Sibanye-Stillwater [stock_market_widget type="inline" template="generic" color="default" assets="SBGL" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] stock was in fine form on the stock market in the first half of the year, rising close to 70% thanks to the increase in prices of gold and platinum-group metals. This impressive financial performance should bring relief to investors as the company has been embroiled in operational bottlenecks and a takeover saga.

But the good news is that things seem to be falling in place for Sibanye-Stillwater and its financial performance can improve in the coming quarters. Let’s see why.

Making Smart Moves from an Operational Viewpoint

Sibanye recently decided to sell its 51% stake in a PGM-copper project in northern Ontario to a new operator so that the asset can be developed further.

The company will receive $2.28 million upfront for the sale, as well as a 12.9% equity stake in the company to whom it has sold the asset. By making such a move, Sibanye should be able to focus on its core operations and allow other operators to create value in non-core areas.

It can now shift its attention toward Lonmin, whose takeover was recently approved by shareholders. The acquisition of Lonmin has been in limbo for a long time since it was announced towards the end of 2017. With 87% of Sibanye’s shareholders now backing the deal to acquire Lonmin at $286 million, the company’s PGM business will now be better placed going forward.

That’s because Sibanye’s PGM operations in South Africa took a hit in the first quarter of 2019 because of lower production. The company’s output came in at 263,508 ounces for the quarter that ended in March, down from 286,194 ounces in the prior-year period.

So Lonmin can give the company’s PGM output a shot in the arm and help it take advantage of higher prices in the segment. I’m saying this because the average basket price of the PGM operations came in at $1,221 per ounce during the quarter ending in March, up substantially from $1,073 an ounce in the prior-year period.

What About the Elephant in the Room?

Sibanye’s gold operations have been hurt by a strike at its mine in South Africa, forcing the company to raise capital to maintain financial flexibility and prepare itself for any compensation payments. But the good news is that the strike is now over.

The Association of Mineworkers and Construction Union (AMCU) that was leading the strike against Sibanye has reached an agreement with the mining company and accepted their pay agreement. The downside is that the strike cost Sibanye $100 million in revenue according to Indigo Ellis, an analyst at Verisk Maplecroft.

So Sibanye-Stillwater investors can expect the company’s gold operations to pick up in the second half of the year and going forward. As such, there’s a good chance that the recent rally in Sibanye stock could continue in the future as the pieces are falling in place for the company and they could help it keep turning around.

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 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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