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Sibanye-Stillwater expects to recover from headwinds

Share price has fallen 46% since its recent high, but seems to have found some support.
The gold miners are back at work, but wage negotiations at the group’s SA platinum operations are due to begin soon. Image: Waldo Swiegers/Bloomberg

Investors hoping for a recovery in Sibanye-Stillwater’s share price – after employees at the mining company’s SA gold operations returned to work following a three-month strike – have been disappointed to date. The share price kept falling, apparently because the gold price is slipping towards $1 800 per ounce rather than climbing towards $2 000.

The share reached a high of R75 on the JSE a few days before the wage strike, but within a week dropped to R62.

The share continued to drop week after week for as long as the strike lasted.

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When the strike eventually ended, Sibanye-Stillwater had more bad news: higher than normal temperatures in the US caused snow to melt fast, flooding roads and bridges near its platinum mining operations in Montana.

This saw the share price fall to its current levels of a shade over R40, nearly 50% lower than its high earlier this year.

Respite

Hopefully, Sibanye-Stillwater can start to improve from now. Management noted in a Sens announcement that an initial assessment of the impact of the flooding in Montana is not that bad.

“We are pleased to report that despite widespread damage to infrastructure and personal property across the region, our mining and metallurgical operations were largely unaffected.

“Several bridges in the vicinity of our Stillwater mine were, however, damaged during the flooding and sections of the primary access road from Nye to the Stillwater mine have been severely eroded, restricting access to the mine and requiring re-routing of water, tailings and other piping,” it said.

Sibanye-Stillwater added that repair work on an access bridge within the Stillwater mine complex has begun and should be completed in approximately four weeks. It is estimated that operations at the Stillwater mine will remain suspended for approximately four to six weeks before safe access to the mine is restored and production can resume.

Read: Sibanye-Stillwater halts Montana mines amid floods

James Wellsted, executive vice president of investor relations and corporate affairs, says the flooding in the region was severe, affecting a number of bridges and eroding roads.

“You will recall that they had to close Yellowstone National Park,” he says.

“Our operations experienced little direct damage, but the damage to the regional road and bridge infrastructure has restricted access to the Stillwater mine in the valley. While the East Boulder mine and Columbus metallurgical complex have been able to continue operating, the Stillwater mine accounts for about 60% of annual mine production in the US.”

Wellsted confirmed that the SA gold mining operations have restarted.

“The startup has begun. Employees have returned to work and are going through screening, health checks and training processes.

“We shut down the operations and stopped ventilating and cooling [underground working areas] in an attempt to minimise power costs. It is necessary to phase in the build-up to normal production levels over a few months.

“It takes time to reduce temperatures to levels which are safe for working, and then we have to ensure the workplace integrity is intact and work areas are safe before we resume production,” he adds.

Last hurdle

Sibanye-Stillwater is still to face a last hurdle.

Wage negotiations at its SA platinum operation are due to begin in the next few weeks.

The company will meet the same unions that called for the devastating strike in its gold mining operations, but facing different officials as each operation has shop stewards who represent their members and make up a negotiating team.

“Unfortunately, as we saw with the gold mining negotiations, Joseph Mathunjwa [president of Amcu] has a habit of coming in at the end of the negotiations and disrupting the process, often trying to make changes to issues which have been agreed between the parties already,” says Wellsted.

“We hope these negotiations will be conducted in a mature and honest manner and in good faith from all parties, with a clear focus on achieving fair, but sustainable increases. We hope to avoid the damaging and disruptive consequences of a strike such as recently experienced at the gold operations, which negatively impacts all stakeholders,” he says.

The platinum wage negotiations might be difficult. Union officials might believe they ‘won’ at the gold mining operations as Sibanye-Stillwater eventually agreed to raise the increase from R800 per month to R1 000.

But workers actually suffered. Sibanye tallied up the loss of wages during the wage strike as the principle of no work, no pay applied. Category 4 employees lost out on R51 888 worth of wages and Category 8 employees lost R64 298 during the strike, for the sake of an extra R200 per month.

The effect is that workers wasted the whole R1 000 increase during the duration of the strike.

It will take more than four years for Category 4 workers to earn back the lost wages. It will be more than five years before Category 8 workers effectively receive an increase.

These calculations are based on the increase of R1 000 per month. Doing the sum using the difference of R200 between Sibanye’s original offer and the eventual settlement will be too depressing to calculate.

Until recently, Sibanye-Stillwater published the total in lost wages on the company’s website. It also mentioned that employees actually lost more than R1.5 billion in wages during the strike.

Shareholders and the wider community lost too. The gold division will probably report a big loss when Sibanye-Stillwater publishes its results for the June quarter within the next week or two, and that it won’t pay much by way of taxes.

It might add a warning that the third quarter will not be much better as gold mining production will take a few weeks to recover to normal levels.

Shareholders

Sibanye-Stillwater’s market capitalisation decreased by around R99 billion due to the share price tumbling from its high of R75 to the low of around R40 – representing the total loss in value for shareholders.

Shareholders are however likely to claw back their losses sooner than workers.

Analysts note that the share offers value at current level as operations will return to normal eventually, while the gold price is maintaining its levels of above $1 800 per ounce.

Also, the rand has weakened quite a bit during the last quarter compared to the preceding three months. The exchange rate averaged R14.96 per dollar during the quarter to end-March 2022, but spent most of the time above R16 in the quarter to end-June.

Mia Kruger, portfolio manager at Kruger International, says the share looks oversold at current prices after the series of headwinds that hit the company.

“Unfortunately, there is the possibility of further negative sentiment as wage negotiations at the SA platinum operations start within the next week. It is uncertain if the negotiations will be concluded as quickly as was the case at Implats, Amplats and Northam, who all agreed on a five-year wage increase of around 6.5%.

Read: Should I invest in miners or their commodities?

“After an ugly strike of over three months at their gold mines, gold production will resume gradually over the next three months following the signing of a three-year wage agreement. Gold production accounts for around 15% of the company’s revenue and around 6% of adjusted earnings before interest, tax, depreciation and amortisation,” says Kruger.

She notes that Sibanye-Stillwater has a “very strong” balance sheet with interest coverage ratio of 30 times, and profit margin of over 36%.

“Demand for platinum group metals will remain strong due to global supply constraints being elevated by sanctions against Russia, while diversification into battery metals will drive growth into this niche area in future when demand rises,” says Kruger.

“The dividend yield of over 10% and high cash dividend payout ratio remains very attractive. Sibanye looks like a mining company that is well positioned and capitalised for good long-term growth.”

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Actually, the share price is not oversold, it is simply reflecting the reality of it’s economic circumstances, depressed precious metal prices in a slowing global economy, rapidly climbing input costs (oil, electricity, labour), and disruptions to production (floods, strikes, load shedding).

With a Sibanye share price now under R40/ share, it makes you wonder how smart it was blowing R10bn on a share buy back at an average R58…would have been smarter to have simply paid down debt on which interest rates are rising…

Equity remains more expensive than debt.

How ungrateful you guys sound. As if the captain has never steered this ship through rough seas. It’s easy to judge price now as if you we all saw the future and they should’ve waited till now before the buy back.. mcm

Never fear! Froneman will almost guaranteed buy something / anything / everything.

End of comments.

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