SIBANYE-Stillwater concluded an R8bn share repurchase programme earlier this month, but its success belies no small degree of frustration at the gold and platinum group metal (PGM) miner. While a buy-back is a viable form of shareholder return – less shares in issue mean more earnings per share – its evil twin is a recognition that the market isn’t fully valuing the company.
This notion of fair valuation was at the heart of recent comments by Laurent Charbonnier, Sibanye-Stillwater’s chief commercial and development officer. Rarely in the spotlight, Charbonnier raised the question at the firm’s PGM capital markets day on September 23 as to why one Anglo American Platinum (Amplats), the 80%-owned Anglo American company, was worth two Sibanye-Stillwaters?
“Clearly the market is always right and it always knows best,” said Charbonnier. Yet Sibanye-Stillwater is “… in positioning on the cost curve in terms of EBITDA not that different from Amplats,” he said.
Among the assets discounted in Sibanye-Stillwater’s share price is its South African gold and US-based PGM recycling businesses, and its growth strategy which provides geographic and earnings diversity, he argued. For instance, some R10bn has been invested or committed by Sibanye-Stillwater this year alone in strategic joint ventures in the future-facing battery metals market – nickel processing and lithium – in Europe and the US.
As the market “is always right”, Charbonnier thinks it simply hasn’t the correct information on Sibanye-Stillwater’s business trajectory.
“We are now providing significant information to the market to break the neck of previous stereotypes which existed around the group,” he said of the capital markets presentations which had included an earlier focus on the group’s gold assets.
Charbonnier’s comments appear to have fallen on deaf ears, at least for now. Since that presentation, Sibanye-Stillwater has continued to underperform Amplats, gaining 6% compared to an 12% improvement at Amplats. On a 12-month basis shares in Sibanye-Stillwater are 1.6% higher whereas Amplats is 14% higher. Why does the discount on Sibanye-Stillwater shares persist?
Gold losing shine
The clue might be in the gold business. Whilst producing about 800,000 oz and offering leverage to the gold price, Sibanye-Stillwater’s three gold mines – Kloof, Driefontein and Beatrix – contributed only 6% to the R40.5bn in adjusted EBITDA Sibanye-Stillwater reported for the six months ended June.
As ageing, deep underground mines, with about 31,000 employees (5,600 contractors), they are also vulnerable to safety lapses, seismic events, and strikes. Resources are depleting and therefore carry rehabilitation liabilities.
HSBC analyst Leroy Mguni captured the matter at Sibanye-Stillwater’s presentation on gold by asking whether the company would consider selling its gold assets, especially in view of the high safety risks.
“Of course selling is always an option but that is a cop-out,” said Neal Froneman, CEO of Sibanye-Stillwater. “There are 30,000 people who have jobs dependent on us. We won’t put lives ahead of livelihoods, but these are complex situations,” he added.
There are plans to access uranium resources at Sibanye-Stillwater’s Beatrix West mine in the Free State province, which only has about five years of life left, but this – as with the group’s acquisition of battery metals of which there are more to come – is a bet placed on a major improvement in the uranium price.
Mick McMullan, the former president and CEO of Stillwater Mining, the US firm that Sibanye-Stillwater bought for $2.2bn (when it was still called Sibanye Gold) says the company’s strategic acquisitions could stand for a lot as the battery metals market develops. McMullen is betting on it: he recently set down plans to list a $250m SPAC on the New York Stock Exchange aimed at investing in green metal production.
“He [Froneman] was an early mover in getting out of South Africa by buying Stillwater and now we can see he’s an early mover in future facing metals,” said McMullen at the Joburg Indaba conference earlier this month. Whilst these acquisitions don’t measure up for the Stillwater Mining outlay, “… if they pay off they will give his company a differentiation against some of the other traditional South African mining companies,” he said.
For now, the battery metals investments aren’t generating cash and bring with them uncertainty. For example, a joint venture with an Australian firm ioneer in a lithium mine is being threatened by environmentalist opposition it will destroy a rare buckwheat.
However, concerns that Sibanye-Stillwater will break out a new blockbuster merger and acquisition transaction large enough to imperil the recently reinstated dividend are not considered high.
Charbonnier argues Sibanye-Stillwater has a track record of successful merger and acquisition activity. In the case of the PGM assets it bought, its market timing was spectacular but the assets were all turnaround opportunities at which Froneman is a past master.
There’s more scepticism on greenfields and brownfields development which is perhaps another reason investors are holding off on the premium rating the company craves.