Shares of Sibanye-Stillwater Ltd. (SBSW, Financial) have a lot of volatility because of its sector exposure, but the stock looks set for upward momentum as valuation metrics make sense for once. It's been a difficult period for the mining company due to the threat of new Covid variants and civil unrest in South Africa, but it looks to be an open road from here on.
Uranium for nuclear power
Sibanye is the world's largest producer of platinum and one of the largest producers of gold. Both metals have wide applications that are well known, but few know the uses of one of the company's other byproducts derived from its operations, uranium.
Uranium is used for nuclear power. According to the World Nuclear Association, nuclear power could provide us with 25% of global energy in the coming decades. China currently sees it as a handy zero-emission source. As a result, it currently has over 50 nuclear power plants under construction.
Rhodium prices
Soaring rhodium prices have also been boosting Sibanye's top line.
Source: Trading Economics
Currently, rhodium makes up 41% of the company's revenue mix, and wider margins have contributed significantly to its 78% year-over-year increase in Ebitda.
Share buyback
The company remains committed to repurchasing 5% of its shares, which further bolsters the expected diluted earnings per share. The company's 17.38% earnings yield also remains well beyond its 7.87% cost of debt, meaning that share repurchases will most likely be accretive to the stock's fair value.
Relative value
Source: Morningstar
Sibanye has improved its price-earnings ratio by a significant amount over the past several years. Its price-to-cash flow multiple also trades well below the threshold of 15, conveying that there's value in abundance.
Source: TipRanks
Wall Street thinks the stock will reach the $25 mark, with RBC Capital, JPMorgan and BMO all reiterating buy ratings.
Final word
I expect Sibanye stock to shoot through the roof after its earnings release next Thursday, which I think will be sustained throughout the next quarter. In the longer term, Sibanye will benefit from uranium's prospects and continued platinum demand, but investors need to be prepared for periods of volatility.
