Sibanye-Stillwater (SBSW) is a diversified metals mining company based in South Africa. The company is known for its exploits in precious metals, as it produces the most platinum group metals in the world. I am bullish on the stock.
Gold mining operations at Sibanye in South Africa came to a halt when workers went on strike after rejecting the company’s proposed wage deal. Unions want a $65 increase in the monthly pay of workers at the company’s gold mine, matching that of Harmony Gold (HMY) case from a year ago. However, Sibanye is only willing to increase wages by $46 per month because he considers the demands of workers and unions unrealistic.
According to the company’s CEO, Neal Froneman, “wage increases above inflation are not sustainable and cannot be considered”. He went on to add that “the strike will jeopardize the sustainability of our gold operations and ultimately their future.”
What’s next for SBSW?
While the recent selloff in valuations is not encouraging, it is important to remember that this is not the first time Sibanye has faced a workers’ strike. In 2019, its Beatrix gold mine was closed for five months for similar reasons, ending in a compromised deal.
Additionally, Sibanye’s gold operations represent just 9.8% of its EBITDA, and higher platinum, palladium and rhodium prices will likely soften any income statement backdrop.
Compared to its industry peers, Sibanye’s stock is still extremely undervalued, with its price-to-earnings and price-to-cash flow ratios trading at 60.31% and 30.72%, respectively. Additionally, the stock has formed a momentum pattern amid rising metal prices and is now trading above its 50-, 100- and 200-day moving averages.
The Taking of Wall Street
As far as Wall Street is concerned, Sibanye has a strong buy consensus rating, based on four buys assigned over the past three months.
Sibanye Stillwater’s average price target of $23.25 implies a 12-month upside potential of 31.36%.
Union strikes are not unprecedented in the mining sector. Investors generally assess these types of risks in mining stocks before investing in them. I strongly believe that the decline in Sibanye shares is overdone and will correct itself soon.
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