Sibanye-Stillwater share punished by investors fearing output loss

Sibanye CEO, Neal Froneman Pic: Martin Rhodes

SHARES in Sibanye-Stillwater took a hammering in Johannesburg on May 7, possibly on concerns related to lost production at its west Johannesburg operation, Driefontein, a part of which would not mine gold for another two days this week.

Some 7.7% or R8.30 per share was lost which lowered Sibanye-Stillwater’s market capitalisation to R23.5bn –  the same as the debt it raised in order to buy Stillwater Mining last year.

James Wellsted, head of investor relations, said he couldn’t be definitive about why investors were selling the stock, especially as the South African government’s response to the seismic activity last week – which resulted in the death of employees at Driefontein’s Masakhane mine – had been “measured”.

Sibanye-Stillwater said today that the Masakhane mine – where a seismic event measuring 2.2 on the Richter Scale occurred on May 3 killed six of 13 miners trapped underground following a fall of ground – would shut for about two days. This was in order for employees to mourn their lost colleagues. The rest of Driefontein would also close for a day this week.

Production was shut at the mine for two days last week following the accident that Wellsted said was difficult to anticipate owing to the nature of rock mechanics. “There was a seismic event measuring 2.5 on the Richter Scale on the western part of the mine. That was just before the seismic event on the eastern part of the mine more than two kilometres away where lives were lost,” he said.

Driefontein produces about 50 kilograms of gold a day of which Masakhane comprises a little less than 20% implying total production losses of 180kg to 200kg (5,760 to 6,400 ounces). This included two days of production losses this week.

Investors have expressed concern about the firm’s balance sheet. The loss of production due to the seismic event at Driefontein feeds into the concern about its ability to repay debt, and whether the firm will announce a dilutive rights issue before the end of the year. Sibanye-Stillwater said the chances of a rights issue was remote after refinancing and increasing a credit facility and amid signs of an improvement in the rand gold price.

Sibanye-Stillwater published its first quarter numbers last week shortly before the accident in which it reported a 12% quarter-on-quarter decline in production to 291,500 ounces. Coupled with a weaker average rand/dollar exchange rate – 11.96 in the quarter compared to an average of 13.63 in the December quarter – led to a hefty 62% slide in earnings before interest, tax, depreciation and amortisation (EBITDA) for the quarter to R374m for the company’s South African gold mining division.

Handily, Sibanye-Stillwater’s platinum group metal operations performed well, especially Stillwater in the US, and helped the group to a 30% year-on-year improvement in EBITDA to R1.58m whilst net debt to EBITDA was cut to 2.4x at end-March from a net debt to EBITDA ratio of 2.6x as of December 31.

The share may also be lower as investors fear regulatory action by the South African government. Its comments so far, however, have been relatively sober in nature. South African mines minister, Gwede Mantashe, has urged the company to step-up its efforts to improve safety and said the fatal rockburst should be subject to an investigation.


  1. A total value of R240m shares traded on the day.

    This comprises 1.02% of the value of the total shares in issue at the end of the day’s trading session.
    That means that just over 1% of the “investors” are able to dictate a 7.7% change in the valuation for the remaining 98.98%?

    The price did not drop due to “investor concerns”.
    It dropped because “market makers” make money on moving the price under the guise of “news” such as today’s alleged seismic events.

    The market has become home to speculation and subversion.
    The problem is so far reaching that most everyone either turns a blind eye or anyone highlighting the fact is unceremoniously, ostracised.
    Market makers, with an almost unlimited supply of money, far outweigh real investors in the supply and demand dynamic.
    Valuations based on fundamentals are a thing of the past.

    This situation equates to a game with a referee that will occasionally join with one of the teams when he perceives that a goal is imminent.

    Where does the casino end and real investment begin?

    • Gosh, that’s interesting. Feel free to amplify on this. I must say I was reaching for explanations. Most people I spoke to were at a loss.

      • The production loss as mentioned amounts to around R8m of turnover, which represents a tiny fraction of the total turnover for the business. Does this justify a greater than 10% drop in 2 days? When asked why these movements are occurring, the answer will often be “market sentiment”.

        “Market makers” who are both on the buy and the sell side of the market at once, would like everyone to believe that they provide liquidity. Effectively, they are creating a window of valuation for a given share. This window is moved up or down to create a trading range. Any “real” trades on the boundaries of this range are absorbed as either a buy or a sell.

        If the veil of anonymity was lifted from market trading we would, in all probability, find that the majority of trading is from these “market makers” with “real” investors forming a far smaller portion of the total. Instead of providing liquidity the result is an intentional mispricing due to volume rather than demand.

        Creating a trend is far more profitable than having to follow it. Nothing happens by coincidence where financial gain is involved.

        Gold, by its nature, is competition to currency. Gold shares, by association, are therefore fair game in this struggle. Perhaps company management is aware of this and perhaps not. Either way, there will be no change until the general public becomes aware of the subterfuge.

      • “until the general public becomes aware of the subterfuge” – you, Sir, are astute in economics. But naive when it comes to the ways of the world. As Oscar Wilde commented, “Democracy is a bludgeoning of the people, by the people, for the people.”

      • Naivety is the blanket worn by those who are too afraid to face the reality of the world around them and would rather walk in ignorance than raise their voices for change.

      • All in all, this remains a mystery. How can such a perceived strong company be so undervalued? Is Harmony and Goldfields and numerous others really bigger and stronger? Even Lonmin is “better”, being the most value and political run”down” company in SA. No, the leadership of SGL is doing it wrong, loosing direction in the market (gold, platinum and worldly waters). Who will be taking them on over this poor show?

        David, how do the investors rally against this poorly run company. This needs to stop, no question about it!

  2. LT trend for SBGL is down. Therefore bad news will be amplified. Simply put, there are on balance a lot less takers for the price as it falls. Confidence in is still there re ability to generate enough debt servicing cash but with net debt levels very high, there is just no room for error or external shocks.
    The price can and will be pushed down because this is the path of least resistance -you can argue fundamentals all day long.

  3. So, in order to “accept” the public market, an investor should ignore the fundamentals and rather view the “other” contributing factors such as trends. However, asking the same investor to ignore the fundamentals of a private company, when it is being assessed as a potential investment, would be laughable to say the least.

    Why would it be different when buying part of a public company, which is specifically made as accessible as possible to the general public for investment purposes?

    Todays’ market is awash in excess liquidity. Debt based pseudo capital, inflating prices. A phantom representation of real capital and by nature; anything in excess reduces its own value. This is that which is driving these trends. Trends, based on volume of capital flow and not value of capital invested.

    Return on investment, based on capital captured by trade, not capital return through growth and dividends. When a share price is so far disconnected from its fundamental valuation as to disregard it altogether, there is very little difference between investing and gambling.

    The point is that anyone seeking a return on their hard earned capital through careful investment is being fleeced by the structure of the existing markets, together with excess liquidity. Perhaps this is exactly the intention.

  4. Wow! Sibanye/Stillwater is now worth half the value of what the company paid for Stillwater alone.
    In other words, the entire South African operation and half of Stillwater is valued at one big zero.

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