Introduction
Johannesburg-based company Sibanye Stillwater Ltd. (SBSW, Financial) released its six-month earnings results for the period ended Dec. 31, 2023, on March 5.
I have been following the miner since February 2014 and own a long-term position in the company.
The group is mining platinum, palladium, rhodium, gold, chrome and, most recently, lithium, nickel and zinc. The revenue per metal for the six-month period is indicated in the chart below:
The revenue from gold in the second half represented the lion's share with $774 million.
Results snapshot
Understanding Sibanye's balance sheet can be complex and time-consuming. Still, it is worth noting the company's business model highly correlates with the prices of precious metals such as platinum group metals and gold. Recently, gold and silver prices have significantly increased and reached new records, while PGM prices, which constitute a substantial portion of the company's revenue, have been weak. This situation has had a powerful impact on the company's performance, which I will analyze below.
If we look at the one-year performance of Sibanye Stillwater and Impala Platinum Holdings Ltd. (IMPUY, Financial), we can see they both suffered significant drops.
Sibanye Stillwater is a company that produces various metals in the U.S. The metals produced include palladium, platinum, rhodium, and gold, among other metals. The company makes these metals through direct mining and recycling, although recycling generates a lower profit margin.
Additionally, it acquired Sandouville in Northern France to produce iridium, ruthenium, chrome and even nickel. However, the most important metals for Sibanye Stillwater are rhodium, platinum and palladium, followed by gold.
Investment thesis
Importantly, despite obvious weaknesses due to a significant drop in the PGM prices, Sibanye Stillwater is still going strong. It will overcome this difficult but temporary situation. Thus, I still see the stock as an excellent long-term investment, especially considering the sharp drop experienced on the one-year chart above.
Unfortunately, despite analysts' predictions of a 2024 rally, palladium is expected to experience a prolonged downward trend. On the other hand, platinum is expected to be stronger due to a supply deficit, which will continue in 2025.
The short-to-medium-term outlook for the PGMs is particularly shaky and challenging, increasing further the downside risk toward the end of 2024 and early 2025, even if the recovering U.S. PGM and South African gold segments mitigate a portion of the downside effect.
During a conference call, CEO Neil Froneman said:
"The South African operations, I'm pleased to say, both gold and platinum are profitable despite, the depressed PGM basket price. In terms of South African gold operations, again, another good outcome."
Sibanye Stillwater has undergone a significant structural transformation, positioning it as one of the world's leading primary producers of platinum group metals. The company has also expanded into the nickel and lithium segments, offering exposure to the promising battery metals sector, which is anticipated to experience substantial growth in the next few years.
Thus, it is important to adopt a LIFO strategy here. Taking advantage of the constant volatility in the PGM sector is essential. Trading LIFO lets you keep a core long-term position untouched, earning dividends until the stock reaches your final target while taking advantage of the short-term volatility by accumulating short-term gains and reducing risks.
Stock performance
The one-year chart comparison presented below shows the performance of the VanEck Vectors Gold Miners Exchange-Traded Fund (GDX, Financial), the Aberdeen Standard Physical Palladium Shares ETF (PALL, Financial), the Aberdeen Standard Physical Platinum Shares ETF (PPLT, Financial), Sibanye Stillwater and Impala Platinum. These stocks are useful representations of the PGM industry.
Sibanye Stillwater and Impala have significantly underperformed in the sector and are now down 45% and 51% on a one-year basis, respectively.
The outperformance is due to technical issues over the last few months, as well as weakness in the prices of palladium and rhodium, which are partially offset by the gold price.
Balance sheet history and trends: The raw numbers
The numbers below are indicated in U.S. dollars and can vary depending on the ratio between the South African rand and the dollar. Each Sibanye Stillwater ADR represents four Sibanye Stillwater Ltd. shares.
| Sibanye Stillwater ADR | 12/2021 | 6/2022 | 12/2022 | 12/2023 |
| $US vs. ZAR | 15.40 | 17.33 | 18.94 | 18.66 |
| Total Revenues in $ Million | 4,570 | 3,878 | 3,326 | 2,846 |
| Basic Net Income attributable to SBSW in $ Million | 782 | 344 | 396 | -2,459 |
| Adjusted EBITDA $ million | 1,465 | 635 | 776 | 340 |
| EPS in $/share per ADR (4x) | 0.28/1.12 | 0.13/0.52 | 0.14/0.56 | -3.44/-13.76 |
| Operating Cash Flow in $ Million | 285 | 645 | 264 | 113 |
| Capital Expenditure in $ Million | 399 | 564 | 579 | 621 |
| Free Cash Flow in $ Million | -111 | 81 | -315 | -508 |
| Cash and cash equivalent $ Million | 1,673 | 1,509 | 1,182 | 1,376 |
| Borrowings, including current in $ Million | 1,282 | 1,315 | 1,350 | 2,177 |
| Net debt in $ million | 0 | 0 | 168 | 801 |
| Dividend per ADR in $/share | 0.49 | 0.33 | 0.27 | 0.112 |
| Shares outstanding (diluted) in millions | 719.22 | 707.73 | 707.70 | 707.64 |
| Production Au Oz | 12/2021 | 6/2022 | 12/2022 | 6/2023 |
| US 2E PGM Production | 230,039 | 191,094 | 205,513 | 221,759 |
| US recycling Oz | 361,333 | 237,441 | 162,452 | 147,862 |
| US AISC 2E/Oz Stillwater | 1,366 | 1,840 | 1,737 | 1,992 |
| SA 4E PGM | 823,806 | 843,658 | 799,182 | 873,745 |
| SA AISC 4E/Oz | 1,179 | 1,179 | 1,083 | 1,094 |
| 4E PGM Price in $/Oz | 2,817 | 2,434 | 1,867 | 1,304 |
| Gold Production Au Oz | 191,683 | 428,859 | 416,738 | 393,847 |
| Average gold price $/oz | 1,864 | 1,720 | 1,921 | 1,955 |
| AISC Gold $/oz | 3,115 | 2,019 | 1,813 | 2,008 |
Source: Company release analysis.
The average historical ratio of rands to dollars was 18.66 in the second half of 2023.
Total revenue was $2.85 billion on Dec. 31.
Sibanye reported a loss of $2.45 billion for the six-month period while generating $2.84 billion in revenue. In contrast, the company earned a profit of $340 million in the second half of 2022. The company ended the period with net cash of $1.37 billion.
The earnings per share showed a loss of $13.76, whereas it was a gain of 52 cents in the prior-year period. Revenue witnessed a decline of 26.60% and adjusted Ebitda fell by 46.50%.
Sibanye declared weak financial results for the past six months, which were highly impacted by the depressed PGM basket prices in South Africa and the United States. However, the restructuring of the high-cost shaft in the South African PGM operations was completed in February. Additionally, the gold unit's restructuring of the Kloof 4 shaft was also completed during the fourth quarter, which was a success.The gold unit is profitable and generates positive cash flow. Below are the salient features for the period.
Despite the weak results, Sibanye's balance sheet is in good order, with net debt increasing to $831 million and cash of $1.37 billion and liquidity at net debt to adjusted Ebitda of 0.58.
Free cash flow was negative $508 million.
Further, the company experienced a negative free cash flow of $823 million over the past 12 months, with a negative free cash flow of $508 million in the second half of 2023. Operating cash flow fell significantly to $113 million, while capital expenditures rose to $621 million.
The company did not pay a final dividend for 2023 due to insufficient free cash flow.
The miner's gross debt stood at $2.17 billion at the end of the year.
The cash and cash equivalents are now $1.37 billion, while long-term debt, including current (excluding non-recourse debt) is $2.17 billion. Debt increased after the company raised $500 million through a convertible note at 4.25% to fund the Reldan acquisition and protect the balance sheet.
Production analysis
Sibanye Stillwater's nickel production for the second half of the year was 3,632 metric tons, increasing from 2,277 metric tons in 2022. Also, the company started producing zinc in Australia after acquiring 100% of New Century Resources in March 2023. The company's first production in the first half of the year was 24,000 tons. It produced 51,000 tons in the second half.
Production was higher sequentially, reflecting the recovery in production from the flooding incident in the second half of 2022. U.S. Production 2E/PM was 221,759 2E ounces, up from 191,094 2E ounces last year, but recycling delivered only 147,862 3E ounces, down from 237,441 in 2022. Total production in the U.S. was 369,621 3E ounces, down from 428,535 3E ounces last year.
In the press release, the company said:
"Production from the US PGM underground operations steadily improved over the course of 2023, following the shaft incident at the Stillwater West mine during Q1 2023, achieving sustainable levels during Q4 2023. Mined 2E PGM production of 427,272 2Eoz for 2023 was 1% higher than for 2022 and in line with revised guidance of 420k 2Eoz to 430k 2Eoz."
Costs increased by 4% year over year due to a lack of skilled workers and depressed PGM prices.
The gold production was 393,847 ounces in the second half, down significantly from 428,859 gold ounces in the year-ago period, with an average price of $1,955 per gold ounce from $1,720 in 2022. The 4E PGM production was 873,745 4E ounces, up from 843,658 4E ounces in second-half 2022.
The company indicated $1,304 per ounce for the 4E PGM Price basket, down significantly from $2,434 per 4E PGM in December 2022. A dramatic decrease that affected revenue significantly.
Froneman said during the conference call:
"The South African gold operations, as I've said, are also profitable and generating, a positive cash flow. Important, we often ask, why do we continue to pursue gold as part of our commodity mix? Well, I think it's very clear in global economic downturns that, gold safe haven status is a positive. And just to note, if we could create value by growing our gold portfolio, we would. Gold is a good commodity to have when you have a large base of industrial commodities as well."
Sibanye Stillwater indicates three different all-in sustaing costs. AISC for gold reached a record high due to the low production this semester.
| AISC type | 12/2022 | 6/2022 | 12/2023 |
| AISC 2E PGM | 1,840 | 1,737 | 1,992 |
| AISC 4E PGM | 1,179 | 1,867 | 1,304 |
| AISC Gold | 3,019 | 1,813 | 2,008 |
Additionally, Sibanye produced 2,456 tons of chrome in 2023, slightly lower than in 2022. However, chrome prices increased significantly from $233 in 2022 to $287 per ton in 2023.
2024 production guidance per region
Looking ahead, in the U.S., PGM operations are expected to be 440 to 460 Koz, whereas U.S. recycling will be 300 to 350 Koz.
In South Africa, PGM operations are expected to be 1.80 to 1.90 Moz, while gold operations are 627 to 659 Koz.
In Europe, the Sandouville nickel refinery is expected to produce 7.5 to 8.5 Kt of nickel. The Keliber lithium project capex is expected to cost 361 million euros ($388.76 million).
As for Australia, the Century zinc operations are expected to produce 85 to 100 Kt of zinc.
Technical analysis and commentary
Note: The chart is adjusted from the dividend.
Sibanye Stillwater forms a descending channel pattern with resistance at $5.38 and support at $4.60.
Ascending channel patterns are typically bullish patterns in the short term. However, they often occur as continuation patterns within longer-term downtrends. The price of PGMs is not supportive, but the gold price will likely keep the stock price above $4.20.
I suggest trading LIFO and taking profits between $5.20 and $5.60 (about 30%) with possible higher resistance at $5.80 and accumulating between $4.65 and $4.45 with potential lower support at $4.15.
