4. Sibanye Stillwater Limited (NYSE: SBSW)
Sibanye Stillwater Limited (NYSE:SBSW) is a multinational precious metals mining company working to produce and market mining properties in the United States and South Africa. The company explores gold and copper deposits and ranks 4th on our list of 10 best African stocks to invest in. This May, Sibanye Stillwater Limited (NYSE:SBSW) reported adjusted earnings of $1.38 billion, and production was up 6% year-on-year.
The company estimates 660,000 to 680,000 ounces of platinum group metals (PGM) output from its US facilities in 2021, and 1,750,000 to 1,850,000 ounces from South Africa. Earlier this year, the company announced its agreement to acquire around 30% equity of European lithium company Keliber. The project includes a chemical factory in Kokkola used for the production of battery-grade lithium hydroxide, which is projected to be completed in 2024.
Desert Lion Capital mentioned Sibanye Stillwater Limited (NYSE:SBSW) in its Q1 2021 investor letter. Here is what the fund said:
“Sibanye is a South African gold and platinum group metals (“PGM”) producer with mines in South Africa and the U.S. Established in 2012, it has since become one of South Africa’s largest gold producers and the largest PGM producer in the world. Sibanye also operate a PGM recycling facility and own a majority interest in DRDGOLD, a specialist in the recovery of gold and other precious metals from open pit tailings.
The investment thesis incorporates the following logic:
- If central banks globally are going to continue printing money unabated, precious metals prices should rise.
- The drive for cleaner and greener is accelerating. The market for platinum, palladium and rhodium is structurally attractive.
- The company is generally mischaracterized. Ask around, and one will find that most people still refer to Sibanye as “a South African gold miner” with “lots of debt from that Stillwater acquisition.”
- It is not quick and easy to ramp up PGM supply in response to higher demand and prices. Favorable supply-demand characteristics will likely remain favorable for longer.
- Bad capital allocation decisions, corporate excesses, and resultant tarnished reputations from the previous boom period are still fresh in the minds of most mining executives. Neal Froneman has proven himself a disciplined capital allocator. His approach to capital allocation is straightforward: deploy capital at expected returns that enhances value to shareholders or distribute it via dividends and buybacks.
- The company is debt-free and generating heaps of cash.
- The valuation is cheap. At current metal prices, Sibanye is trading at about 5 times after-tax cash profits.
Sibanye is effectively a call option on a potential commodity super cycle. In the meantime, the value of our “option” is unlikely to deteriorate as we are rewarded with healthy dividend flows.”
