Sibanye Gold：在度过最近的挫折时买入低点

SBGL reported first-half earnings which were impacted by a workers\' strike at its South African gold mining operations, which was finally resolved in April.

Expectation is for increasing production and higher profitability going forward, supported by the strong pricing environment for precious metals.

Management is bullish on PGM prices, expecting a recurring market deficit for platinum and palladium over the next decade.

Sibanye Gold (NYSE:SBGL) is the world’s largest producer of platinum, the second-largest producer of palladium, along with a major gold mining operation. The company struggled in recent years given the volatile pricing environment, but has grown through a number of acquisitions including its merger with U.S.-based Stillwater Group in 2016 and Lonmin PLC this year. The stock is up an impressive 60% in 2019 given the ongoing rally in metals, particularly palladium and platinum, even as a 5-month long work strike at its South African gold mines disrupted firm-wide production and earnings for the first half of the year. Favorably, the strike was resolved back in April and the company sees a normalizing operating environment going forward with higher profitability. We are bullish on SBGL seeing the company moving past some of the recent setbacks and well-positioned to benefit from the next leg higher in precious metals prices. This article recaps the latest earnings release along with our view on where the stock is headed next.

South Africa-based Sibanye reported first-half results on August 28

with a loss of R265.2 million (USD -$18.9 million), compared to a profit of R76.7m during the comparable period in 2018 (USD $6.4m). The loss was attributed to lower gold production at 345 oz, down 42% compared to 598k oz last year, a result of the strike. First-half adjusted EBITDA fell 47% y/y to R2.07B from R3.89B in the period last year. On the other hand, a depreciation in the rand, with higher platinum group metals (PGM) operational results in the U.S and South Africa, along with the rally in market prices balanced the overall result. Management said gold production has begun to normalize and increased 41% in Q2 over Q1.

Overall, it was a difficult first half of the year, but the company is optimistic that its restructured South African operation and more diversified portfolio of assets set it up for an improved outlook. The company highlights that its leverage position at 2.5x net debt to EBITDA is well below covenant limits of 3.5x and set to trend lower in the second half of the year.

The company is guiding for 772k-804k oz of gold at an all in sustaining cost (AISC) between USD $1,640/oz and $1,725/oz. This full-year production estimate is dragged lower (costs higher) by the strike in the first half of the year. The second half of the year guidance suggests a stronger trend with 514k oz to 546k oz estimate, implying a full-year recurring level above 1 million ounces in gold production. The expectation is that the AISC trends lower as gold production ramps up to normalized capacity. The company is positive considering a supportive precious metals environment. PGM operations now represent approximately 40% of its firm-wide PMG output, which the company describes as a favorable trend in diversifying away from South Africa.

The company included a market outlook for the platinum metals group in its recent investor presentation, describing an expectation for record supply deficits in palladium through the next decade. The company thinks, "excess above ground stocks and producer inventory releases are unable to sustain the current palladium market." For platinum, SGBL believes the decline in global diesel engine penetration rates, a key driver of platinum demand, has already been pricing into the market and sees prices "poised for better days" with an expectation of a growing market deficit from 2021 as global production contracts.

SBGL PGM outlook. Source: Company IR

We are very bullish on precious metals considering the global macro environment that includes an uncertain growth outlook with an expectation that central banks continue to lower rates in an effort to extend the economic cycle. Gold has proven to be a primary beneficiary in recent months as a flight to safety and store of value investment, while we view platinum and palladium as adding diversification to a precious metals portfolio.

What's interesting about the current market dynamic is that there is a case to be made that is bullish for PGMs even if central banks are indeed successful in reviving growth and averting a global recession. In this scenario, we think inflation expectations could move sharply higher driven by a renaissance of demand pressures which would also be supportive to precious metals and the industrial uses of PGMs. SBGL could stand to benefit in different market environments.

With SBGL, investors get the leader in PGM mining which is benefiting from fundamental demand drivers beyond its bullion investment aspect, considering a market outlook for growing supply deficits going forward. We think SBGL has upside as the company is exiting this period of negative headlines from the workers' strike and is particularly geared for a continued rally in prices higher. We see the stock trading back to its highs of the year at $5.75 per share, representing 24% upside by the end of the year.

The following points summarize a bullish case for SBGL, including catalysts that can move the share price higher.

With that said, the risks here cannot be understated as the stock remains clearly exposed to potential downside in PGM prices, if that indeed is the direction the market goes. We note that there is an ongoing wage negotiation with PGM mining workers in South Africa and the potential for a breakdown in talks cannot be dismissed, although there is a consensus that the company has learned some lessons from the experience with the gold labor union. On the other hand, news of a finalized long-term agreement could be a bullish catalyst for the stock if it occurs on favorable terms by the end of the year.

Following a series of setbacks over the past year, including the major strike at the company's gold mines in South Africa, Sibanye has an improved operational outlook supported by the strong environment for precious metals prices. With the price of palladium making new record highs near $1,600 per ounce and gold production ramping up to normalized levels, SBGL is well-positioned to benefit from the ongoing bull market. Monitoring points going forward include the current negotiation with the PGM labor union in South Africa, along with cost and production levels.

I am/we are long SBGL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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