Sibanye-Stillwater’s market valuation took a pounding on Tuesday as the share price slumped as much as 9.2% in its biggest one-day fall in five months after Morgan Stanley downgraded the already beaten-down stock, catching the market off guard.
The share price had been showing early signs of recovery after bottoming out at R25.87 nearly a month ago, though it is roughly half what it was in January when it was trading at R51.68. It reached a record high of R75 in March last year.
Sibanye and its peers are reeling from a precipitous drop in platinum group metal (PGM) prices and its potential effect on cash flows at a time when mining costs are particularly elevated.
“There is a possibility of Sibanye-Stillwater’s balance sheet returning to a net debt position over the next 2.5 years, and the pressure on the dividend payout as a result of cash payments to Rustenburg and Marikana black empowerment scheme participants progressively ramping up,” Morgan Stanley analyst Christopher Nicholson wrote in a note to clients.
Morgan Stanley also said it was not convinced that Sibanye, headed by renowned dealer-maker and CEO Neal Froneman, will be able to repeat the level of success in acquisition-led growth seen between 2014 and June 2023 as the company branches into the battery metals business to diversify its income stream across the US and Europe.
Amid much criticism, Froneman took a leap of faith in the past by acquiring unprofitable PGM mines in the Rustenburg platinum belt at the bottom of the cycle as he sought to insulate the group from the deep and costly SA gold mines hived off from Gold Fields in 2013.
He later oversaw the strategy that added more PGM assets to the group through the acquisition of US-based Stillwater, which culminated in the renaming of the company from Sibanye Gold to Sibanye-Stillwater.
The strategy delivered enormous value to shareholders over a lengthy period of time, with the share price rising strongly from an original R13 when the company listed on the JSE in 2013.
Sibanye is now bidding to buy unprofitable Mopani Copper Mines in Zambia.
Large investments in battery materials have been in a bid to future-proof its business, but also to position itself well as the world transitions to more sustainable energy options.
It has exposure to lithium assets in Nevada in the US and Finland among other jurisdictions, in the hope of taking advantage of potential opportunities presented by rising demand and production of electric vehicles.
While demand for these vehicles is rising rapidly in countries such as China and the US, they still form a minuscule part of the market in SA, where supporting infrastructure is yet to be fully developed.
PGMs are largely used in internal combustion engines to curb harmful emissions, as well as jewellery.
By the market close, Sibanye’s share price had recovered a little to close down 6.87% to R26.28, giving it a market capitalisation of R74.4bn, about R5.4bn less than at Monday’s close.
According to an Infront consensus of nine analysts, four had the share as a hold, two a strong sell, two a buy and one as a strong buy. Just 12 weeks ago there were two buys and three strong buys.
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