Sibanye-Stillwater vaults as much as 22% on another day of gold share gains

SHARES in Sibanye-Stillwater climbed by more than a fifth during mid-morning trade on the Johannesburg Stock Exchange today – a development the company said was reflective of its “better outlook”.

“We are recovering from the significant negativity from the first quarter and the market is starting to reflect the better outlook,” said James Wellsted, head of investor relations for the firm which was 17.6% stronger at the time of writing but appeared to be correcting. In the last month, the company’s shares were about 40% stronger.

The improvement in the share price was part of a wider appreciation in South African gold shares and was not related to a short squeeze, said a trader.

Shares in Harmony Gold and AngloGold Ashanti were both 7.5% higher today whilst Gold Fields gained 4.5%. The improvement in Sibanye-Stillwater shares puts the company’s market value roughly R3bn within that of Gold Fields.

“We started the year at over R16/share,” said Wellsted. “At the time the rand was stronger and metal prices lower (rand gold price averaged R507,700/kg, the rand 4E basket price averaged R12,839/4Eoz, and dollar 2E basket average $1,027/2Eoz),” he said.

“We had gearing of 2.6x net deb to adjusted EBITDA at the time and the market was concerned about our ability to deleverage under a scenario when the rand was potentially going to carry on strengthening.

“We then had then had the safety incidents which caused more concern about the ongoing nature of the operations and our ability to reduce our debt.

“Since then the operations have stabilised, we have done the stream (a streaming deal in which $500m was raised from selling gold and some palladium from Stillwater Mining) which has brought our leverage down meaningfully to 1.85 x (proforma at end June 2018), and the current spot prices are R570,000/kg (+12%), R15,461/4Eoz (+20%) and $1,020/2E oz),” Wellsted said. “We have also passed a number of hurdles on the Lonmin transaction,” he added.

Morgan Stanley said it was bullish on emerging market gold shares. “South African gold equities are operationally geared to the gold price in producing currency terms, given that they are typically third and fourth quartile cost producers,” said the bank’s South African analyst, Christopher Nicholson, as part of a note.

He favoured Sibanye-Stillwater because it “… trades at a material discount to its sum of the parts and where valuation is ignoring sources of optionality”. He also said the premium at which AngloGold Ashanti traded relative to its South African peers was “warranted” owing to its diversification and lower cost of production.

Goldman Sachs said on October 10 that shares in Sibanye-Stillwater were likely to keep rising despite gains to that point. “Despite this rally, we still believe that Sibanye is materially undervalued, trading at a significant discount to platinum group metal (PGM) peers and broadly in line with gold peers,” it said.

The improvement in Sibanye-Stillwater’s balance sheet, a likely continued deleveraging as the firm became cash positive next year, and a strong commodity mix were factors for believing the discount to its PGM peers was unwarranted.