SBGL - Sibanye Gold

[Hubris]

This is a recent spin-off from Gold Fields (GFI). The sell off had some usual selling pressure and then followed by the gold sell off leading to an extremely undervalued company. The company has a current market cap of $720 million and has generated net cash of $180 million in the first six months of operations as an independent entity.

 

Management has continually stated its intention of paying a dividend which in its latest presentation guided towards a 9% implied yield. There have been numerous insider purchases albeit at slightly lower prices than today.

 

A little further detail:

 

SBGL operates three mines in South Africa and is the world's tenth largest gold producer. Following the Cooke transaction it will now operate four mines. The transaction was done for stock (Which I strongly disliked.) The company has recently had a fire in one of the mines, is in the midst of wage negotiations similar to the entire South African mining industry, they are also shutting down certain unprofitable parts of their mines and they are unhedged towards gold prices. All of these prior factors have led to depressed earnings although only on a temporary basis.

 

I must admit my short comings I am NOT a mining analyst and this does fall slightly outside of my circle of competence. However these are some numbers:

 

Revenue Last Six Months: $ 1,007 Million

Operating Profit Last Six Months: $363 Million

Normalised Earnings Last Six Months: $105 Million

EV= $910 Million

 

Some factors that lead to me have a look were that it was a spin-off, it traded on multiple exchanges, the ADR is for four shares which effectively prices the share price below $1. The ADR itself is below $5. This just a truly unloved stock. This is statistically cheap among a peer group which is trading at historically low valuations. There is also a database time lag since this is a spin-off.

Sibanye_Gold_Annual_Report_2012_web.pdf

Sibanye_Gold_June_2013_Roadshow.pdf

Sibanye_Operating_Update_2013_March_FINAL_.pdf

Cooke_Presentation_-_August_2013_Final.pdf

Sibanye_Gold_Interim_Results_Presentation_web.pdf

[Libs]

What are your thoughts on S Africa and how bad things can get?

 

I've read some pretty scary stuff but have no idea if its overblown.

[Hubris]

Well just to keep things rational I would take a probability of say 20% its gets nationalized and factor that into your IV calculation.

I don't think the situation will turn out that bad. I think the price discounts for a lot of uncertainty.

 

I think this company is selling between a third and half of peer valuations. Peers would be other South African miners.

 

[Hubris]

They just announced their dividend current yield around 5.7% and with such a clean balance sheet why not?

[DTEJD1997]

Hey all:

 

Anybody taking a look at this?

 

Looks like they made a great deal getting Stillwater...but have problems in SA with black nationalization?

 

A huge dividend yield, low P/E, low P/B...

 

This is on my watch list.  Anybody else own this, or looking at it?

[jsgcapital13]

Surprised this name is not well discussed given its market cap and support from Exor (really the Reinsurance subsidiary investment arm). The fund is young (2017 inception) but has returned ~56% since inception vs 2% for MSCI world index. The Exor annual letter notes that the two largest positions represent 60% of the fund, and the second largest position is SBGL:/

 

Our second largest position is in South African Platinum Mines. South Africa supplies 60% of the

world’s platinum, an essential metal used in catalysts for the automotive and chemical

industries, as well as in jewellery manufacturing. Platinum miners are trading at historic lows

following a period of oversupply and depressed metal prices. The enterprise value for the listed

sector has therefore declined from over $20 billion in 2011 to less than $2 billion in 2018.

However, with platinum prices having languished for several years well below the levels

required to justify building new mines, supply has declined while demand has grown. Combined

platinum / palladium markets are now in deficit and inventories are shrinking rapidly. With no

new significant mines planned, undersupply is expected to become more acute over the next

few years. We therefore expect prices to recover, driving a sharp recovery in profits and

valuations for the sector.

The industry is also undergoing consolidation. Sibanye-Stillwater, our largest investment in the

sector, has led the process, announcing the acquisition of Lonmin. This transaction will deliver

significant cost savings, through the optimization of mine plans and by increasing the capacity

utilization of downstream refining assets and should therefore be highly accretive.

 

https://www.exor.com/dms/Investitor-Relations/Relazione-e-Bilanci/Archivio/2019/ANNUAL-REPORT-2018_19march/EXOR%202018%20ANNUAL%20REPORT.pdf