Surprise, surprise! Sibanye Stillwater Limited (NYSE:SBSW) is back in the news. The South African miner has secured a refinancing package, likely giving it some breathing room in a tough time.

Although most South African PGMs have lost value Over the past year, Sibanye has underperformed its peer group. I have been following Seeking Alpha’s thread closely during my time as an author and have noticed the recent dissatisfaction with the performance of Sibanye’s stock. Therefore, I decided to share my thoughts on Sibanye’s recent events.

Despite Sibanye’s disappointing year-on-year performance, I see a valuable opportunity. Our previous analysis even argued in favor of value. However, we had doubts about Sibanye’s ability to refinance. So, given the company’s refinancing, I think an update is warranted.

Below are my final thoughts on Sibanye Stillwater stock and why I’m buying it.

Refinancing of Sibanye

Sibanje Stillwater has a R1.8 billion (approximately $101 million) financing deal by exchanging a portion of its future gold production for a fixed amount. According to Reuters, Sibanye will “deliver 1,497 kg of gold in equal monthly tranches from October 2024 to November 2026 in exchange for the upfront money.”

In addition, Sibanye expanded its revolving credit facility from R550 million to R600 million (an increase of approximately $27.8 million). The facility is expected to mature in August 2027, with an option to extend it for a further two years.

Sibanye had previously indicated that it was looking to raise $500 million. True, the last capital raise fell short of the target. However, I argue that additional capital injections are possible and that Sibanye’s recent funding round provides much-needed interim liquidity.

Operational reminder

Since our last report, Sibanye has not provided an update on its operations. The company suspended the publication of its financial report due to a cyberattack. While we do not have updated bottom-up data to work with, systematic risk, the company’s refinancing, and stock price activity are useful indicators.

Let’s first look at Sibanye’s operational performance.

The company’s quarterly results, which ended in March, showed that Sibanye’s U.S. PGM production increased year-over-year and all-in sustaining costs declined, helping the segment achieve positive adjusted EBITDA. However, Sibanye CEO Neal Froneman recently stated that Sibanye may have to close its U.S. operations unless PGM prices recover.

While platinum and palladium futures curves are upward sloping, global economic headwinds such as lower than long-term business and consumer confidence mean palladium prices remain questionable. Furthermore, the company’s US operations recently incurred a $2.1 billion write-down loss in 2023 (group total write-downs were $2.58 billion). As such, we view US PGMs as risky until positive catalysts emerge.

In addition, Sibanye’s South African PGM output increased. However, quarterly adjusted EBITDA fell to $77 million from $391 million a year earlier.

I see positives within Sibanye’s South African PGM segment. Apart from the rising PGM futures curve, the country has gone almost 150 days without load shedding. Furthermore, South African inflation has fallen to a three-year low, suggesting a rate pivot is approaching.

How would lower tariffs and better electricity supplies help Sibanye?

As far as I know, miners often use discounted cash flow models to value their assets. Lower implicit interest rates could support Sibanye’s South African asset values. Furthermore, reduced load shedding (and lower fossil fuel prices) could reduce operating costs, leading to better profitability. Macroeconomic challenges could impact Sibanye’s demand side, but I am bullish on the company’s South African PGM.

Finally, Sibanye has diversified into the Euroregion through the Sandouville nickel refinery and the Keliber lithium development, while maintaining a majority position in the region. DRDGOUD (DRD), a surface refill miner. I believe these projects provide Sibanye with opportunities to smooth revenues, decentralize its PGM-centric business models, and in turn, phase out cyclicality. Furthermore, gold prices are on a phenomenal run, which can be sustained amid global economic and US dollar tail risks.

Sibanye’s accounting loss and impairments

As most of you know, there is a difference between economic and accounting profitability. In my interpretation, accounting adjustments led Sibanye to an accounting loss of approximately $2 billion for the year. While operational difficulties and lower PGM prices dented economic profitability, a large portion of Sibanye’s accounting loss was due to the aforementioned $2.58 billion asset write-down.

Will Sibanye’s profitability recover?

Well, we’ll have to wait and see. I think lower load-shedding and an interim rise in palladium prices might have helped. I’m also optimistic that asset depreciation has bottomed out. Still, I don’t have a magic crystal ball in front of me; hence, “we’ll have to wait and see.”

Price action and valuation

Market commentary

Seeking Alpha data shows that Sibanye’s share price has flattened since our last analysis. However, at the time of writing, the stock was up about 7% in the past five trading days, suggesting that investors have responded positively to the company’s refinancing.

Additionally, Sibanye has broken through its 10- and 50-day moving averages, while remaining below its 100- and 200-day moving averages. This data point suggests that a resistance level has been broken, especially given Sibanye’s positive refinancing news. Additionally, Sibanye’s stock had an RSI below 60 at the time of writing this article, which (to me) suggested that it still has plenty of room to wander.

As an aside, Sibanye breaking his 50-day SMA and staying below his 100-day SMA gives a golden crossover. This in itself suggests that a long-term bullish breakout could occur.

Valuation & Dividends

A look at Sibanye’s valuation metrics shows that the forward price-to-book ratio is higher than the current price-to-book ratio. I find this concerning. However, as mentioned earlier, I believe lower SA discount rates and better economic profits are possible. As such, I am not fazed by the metric, as I believe it is already priced in.

Additionally, I find Sibanye’s EV/EBITDA ratio attractive, especially compared to peers including Anglo American Platinum (OTCPK:ANGPY), Impala Platinum (OTCQX:IMPUY) and African Rainbow Minerals (OTCPK:AFBOF).

Click to enlarge

Source: Seeking Alpha

The following diagram illustrates a peer-based analysis. In the context of mining, I consider EV/EBITDA metrics salient because miners often have differentiated depreciation and amortization accounting rules, meaning that EBITDA can provide a more insightful representation of a miner’s earnings quality, especially when comparing EBITDA to a company’s enterprise value.

Click to enlarge

Source: Seeking Alpha

In summary

In summary, I think Sibanye Stillwater faces ongoing risks. For example, it is not clear whether it will reverse its accounting loss in 2024. Furthermore, data suggests that Sibanye will face challenges in corporate and consumer demand, which will create price headwinds.

Despite the risks, I think the Sibanye refinancing news is a positive sign, especially given the subsequent investor reaction. Furthermore, lower South African load-shedding hours combined with upward-sloping platinum and palladium futures curves provide optimism.

Although it is a risky gamble, I am optimistic about Sibanye and see it as a valuable opportunity.