Big Upside In Sibanye Gold (NYSE:SBGL) Stock After Stillwater Mining (NYSE:SWC) Merger Completes

- April 11, 2017

Sibanye Gold Ltd (ADR) (NYSE:SBGL) acquisition of Stillwater Mining Company (NYSE:SWC) is moving forward as expected. On January 19, 2017, Sibanye Gold Ltd (ADR) (NYSE:SBGL) and Stillwater Mining Company (NYSE:SWC) received early termination of the waiting period under the HSR Act (Hart-Scott-Rodeo Act) with respect to the Transaction. 

The effect of the early termination is that the condition related to the HSR Act has been satisfied.  On February 21, 2017, Sibanye received the approval of the South African Reserve Bank, as required in accordance with the Exchange Control Regulations of South Africa. 

On March 1, 2017, Sibanye Gold Ltd (ADR) (NYSE:SBGL) and Stillwater Mining Company (NYSE:SWC) received written notification from CFIUS (Committee on Foreign Investment In The U.S.) that it is undertaking an investigation of the Transaction. This investigation will be completed by no later than April 14, 2017.  Although it is possible the CFIUS’ investigation could conclude sooner.

The bottom line: The Stillwater acquisition is moving along faster than expected, and that bodes well for SBGL stock owners.

Therefore, let’s start with a look at these two companies, followed by the many reasons that this combination creates a terrific investment opportunity.

About Sibanye Gold (NYSE:SBGL). 

Sibanye Gold (NYSE:SBGL) is a Global precious metals miner with a balanced portfolio of PGM (Platinum Group Metals) assets at a favorable point in the commodity cycle. Morover, SBGL is the largest producer of gold in South Africa and one of the ten largest globally. They currently own and operate gold and uranium operations and projects throughout South Africa. SBGL currently owns and operates four underground and surface gold operations.

They currently own underground and surface PGM operations in South Africa and Zimbabwe. In addition to its mining activities, Sibanye Gold (NYSE:SBGL) owns and manages significant extraction and processing facilities at its gold and uranium operations.

Sibanye’s PGM operations currently makes it the fifth largest producer of PGM’s in the World.  As of December 31, 2016, Sibanye Gold (NYSE:SBGL) had gold mineral reserves of 28.7Moz and uranium mineral reserves of 113.2Mlb. In Addition, they have 4E PGM (Platinum, Palladium, Rhodium and Gold) mineral reserves of 23.2Moz. This is all before they acquire Stillwater. 

About Stillwater (NYSE:SWC).

Stillwater (NYSE:SWC) is the only U.S. miner of PGMs. It is the largest producer of PGMs outside of South Africa and the Russian Federation. Located in Montana, United States, Stillwater’s operations consist of two underground PGM mines including The Blitz Project and the Columbus metallurgical complex. The Columbus metallurgical complex is a state-of-the-art operation that is capable of providing smelting and refining processes for mine concentrates.

Stillwater has the World’s highest-grade PGM deposit in the World.  In aggregate, the two mines produced 545 330 ounces of 2E PGM in fiscal year 2016, at a total cash cost of $438 per ounce. Each mine has its own milling and concentrator infrastructure on site.  Moreover, Production at the Blitz Project is expected to commence in early 2018.

When the Blitz Project is up to full production it is expected to produce between 270,000 and 330,000 ounces of 2E PGM by 2021/2022. Blitz mine is expected to lower cash cost per ounce than that currently of the Stillwater Mine and East Boulder Mine. This, combined with Stillwater’s production of PGMs in the U.S., is why I previously called SWC stock a great buy and a takeout target. Shortly after, Sibanye accounted its acquisition of Stillwater. 

The Stillwater Mine has been producing since 1986, and the East Boulder Mine has been producing since 2002. SMC holds or leases 1,674 patented and unpatented lode, placer, tunnel, or mill site claims encompassing over 26 000 acres.  Stillwater’s proven and probable reserves consist of 21.2 million ounces of contained 2E PGM. The proven and probable reserves are 78% palladium and 22% platinum, and support a mine life of over 25 years. This is a very attractive asset for Sibanye Gold, likely why the South African giant is buying them.

What Is The Upside For Sibanye Gold After The Stillwater Mining Merger?

The Stillwater operations provide Sibanye Gold with two mining operations currently producing 545,000 ounces of 2E PGM per annum. In addition, the downstream processing facilities at Stillwater provide an opportunity for Sibanye to establish itself as both a mine-to-market company and as a globally competitive PGM recycler.

Stillwater processed 623,007 ounces of recycled PGM in 2016. The opportunity to sustain and potentially grow this aspect of the business will provide Sibanye with strategic market insight into the recycling of PGM’s. In addition, it will simultaneously enhance the margins of the downstream processing facilities.

Listed Below Are More Reasons the Stillwater acquisition makes sense:

•   Expanding Sibanye’s portfolio with high-grade reserves that currently support over 25 years of mine life.

•  Providing near-term, organic and low-cost growth through Stillwater’s Blitz Project.

•  Providing significant upside and growth potential through extensive regional resources.

•   Introducing a significant recycling operation which provides a steady margin and strategic market insight.

•  Balancing its portfolio operationally and geographically with the addition of a world-class operation in an attractive mining jurisdiction.

•  Positioning its platinum division further down the global cost curve, with the potential of further cost reductions.

•  Enhancing its cash flow generation to sustain its industry-leading dividend.

•   Improving its access to lower-cost global financing.

Downside Risks

PGM prices can fluctuate widely. Revenue and earnings depend significantly on world palladium and platinum market prices.  History has shown that the market price of palladium can be extremely volatile. During the last 10 years the price of palladium has fluctuated from a low of $164 per ounce in December 2008 to a high of $911 per ounce in September 2014.  During 2016 palladium averaged $989 per ounce for the year overall.

Although commodity prices are expected to remain strong through 2017, risk is still involved.  Sibanye Gold (NYSE:SBGL) will be a major producer that sells palladium, platinum and associated by-product metals.  As a result, financial performance can be materially affected when prices for these commodities fluctuate.

Share Dilution.

On December 31, 2016, Sibanye had issued Share capital of 929,004,342 Shares of the 2,000,000,000 Shares that are authorized.  Sibanye is seeking approval to increase the authorized Shares of the Company to 10,000,000,000 Shares in order to facilitate the Proposed Right Offer. Sibanye Gold (NYSE:SBGL) is also asking its shareholders to approve the following.

• amendment of Sibanye’s MOI to reflect the aforesaid increase in Sibanye’s authorized share capital.

•  authorization to the Board to issue additional Shares with voting power in excess of 30% of the Shares currently in issue.

• placing the authorized but un-issued Shares under the control of the Directors for the purpose of an issue of Shares to implement the Proposed Rights Offer.

a waiver, in accordance with section 123(3) of the Companies Act by independent holders of more than 50% of the voting rights of all the issued Shares.

• approval to increase the amount of authorized but un-issued Shares for cash to be issued by the Board.

• placing the un-issued Shares under the control of the Board for the purpose of the general authority to issue shares for cash.

Conclusion. 

We first told BNL Members about Stillwater Mining in an article (HERE) and said it was a Buy. After Sibanye Gold announced they were going to purchase Stillwater for $18.00 a share, we then said Buy SBGL Stock (HERE).

We have remained bullish on SBGL stock ever since, and despite the share dilution remain bullish now. Gold has held its price despite many analysts saying it would go down. We see no reason that Gold won’t remain above $1,200 in the near term. PGM prices look to remain strong in our opinion near and long term, and the synergies from Sibanye’s Stillwater Mining Company acquisition are significant.

Long-term, we see SBGL stock as a great investment opportunity. Not only does it pay 4.5% dividend yield, but SBGL stock trades at just 8x earnings. Therefore, SBGL stock is cheap; it pays a good dividend; and there are synergies galore with the Stillwater acquisition.

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