Shares of Sibanye-Stillwater (SBGL, Financial) fell nearly 2% to $5.54 at close on Thursday after the South African precious metals miner posted a loss of $19 million for the first half of 2019 as a result of workers being on an extended strike at gold operations in South Africa.
CEO Neal Froneman said that operating and financial results were “sound,” however, thanks to a successful strategy of diversifying its portfolio of activities from both a commodity and geographical standpoint.
Contrary to what the CEO stated, the group's Ebitda margin for the first half of 2019 dropped 750 basis points year-over-year to 8.8% despite a 17% rise in platinum group metals recycling from U.S. operations and 10.3% growth in platinum group metals production in South Africa.
The Ebitda margin was influenced by a sharp 42.4% decline in gold production from the South African mines to 344,700 ounces due to the extended strike. The Ebitda margin is one of the most significant indicators to measure the profitability of operations of companies that operate in capital-intensive industries such as mining.
The disruption of South African gold operations throughout the first half of 2019 was so severe that not even higher platinum group metals prices could temper the negative effects of the production decline.
U.S. platinum group metals recycling refers to ounces of palladium, platinum and rhodium that were delivered at the furnace. Platinum group metals South African operations pertain to the production of platinum, palladium, rhodium and gold in South Africa.
Looking ahead to full 2019, Sibanye-Stillwater guided for production of 625,000 to 640,000 ounces of palladium and platinum at an all-in sustaining cost of $740 to $755 per ounce from U.S. PGM operations.
The company forecasts the production of platinum, palladium, rhodium and gold from the South African PGM operations to be near the upper limit of the guidance of 1 million to 1.1 million ounces at an AISC ranging between $922 and $974 per ounce.
From its mines in South Africa, Sibanye-Stillwater expects gold production of 514,411 to 546,562 ounces at an AISC of $1,350 to $1,450 per ounce in the second part of 2019, bringing the forecast for full-year gold production at 771,617 to 803,768 ounces.
Further, the company anticipates allocating a bit more than $235 million to U.S. operations, approximately $103 million to South African PGM operations and about $173 million to South African gold operations as capital expenditures for full-year 2019.
The stock has a market capitalization of $3.74 billion as of Aug. 29. The share price has grown 135% over the 52 weeks through Aug. 29 and is now above the 200-, 100- and 50-day simple moving average lines.
The 52-week range is $2.21 to $5.73.
The recommendation rating is on overweight, and the average target price is $6.45 per share, which represents 20.6% upside from Thursday’s closing price.
Disclosure: I have no positions in any securities mentioned.
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