Why I love Sibanye Stillwater $SBSW, and thus I hate myself.

Why is everyone so obsessed with purity?

Hey ChatGPT, dunk on Sibanye Stillwater (SBSW) in the style of “A Lover’s Complaint” by Sir Thomas Wyatt.

I mine for gold, yet find but empty stone,  

In wealth's pursuit, the depths bring only strife.  

I delve and dig, yet riches stay unknown,  

And in their place, but echoes of a life.  

The earth, she groans beneath my weighty tread,  

Her veins, once pure, now bleed a poisoned flow.  

I seek prosperity, but find instead  

The bitter taste of dreams laid low.  

With every stroke, I chase a fleeting gleam,  

Yet shadows grow, and hopes begin to fade.  

The promised wealth is but a distant dream,  

And in its place, the cost of choices made.  

Sibanye's halls are filled with empty cheer,  

A golden lure that hides the tarnished truth.  

For in the quest for gain, there's naught but fear,  

And in its wake, the loss of wisdom's youth.  

Thus I bemoan, in tones both sharp and sweet,  

A miner's plight, where earth and sky compete.  

For all I sought, in grandeur's fleeting light,  

Is lost, as I wage war through day and night.  

In shadows deep, I find my heart's own blight,  

As Sibanye’s promise fades to darkest night.  

I desire to perish, and yet I ask health;  

I love Sibanye Stillwater, and thus I hate myself.

Sibanye Stillwater is a diversified miner of platinum group metals, gold, and more recently lithium and zinc.  They are headquartered in South Africa, but have mines in South Africa, the US, Finland, Argentina and Australia.  It is a larger size than I usually prefer for my value hunting grounds, but who doesn’t break their own rules once in a while?  What I find with larger corporations is that the CEO is more polished, and I can’t as easily tell when he is lying.  I often prefer a founder-led company, or one with heavy insider buying, so that I can own a business run by capitalists and not by managers and bureaucrats.  

CEO Neal Froneman has led SBSW for over ten years, and he has grown the business with accretive acquisitions, but he spews all the trashy Davos talking points which make me retch.  Under his leadership, SBSW has outperformed their peers, but their peers are priced into the trash can right now as well.

One aspect regarding the death of value investing which I haven’t heard discussed enough is the modern obsession with “pure plays.”  I don’t like calling them plays, because I am managing my wife’s and my savings, and I take that very seriously.  But diversified businesses seem like they never quite catch the same bid that the one-trick-ponies do.  For example, SBSW will mine somewhere around 600,000 ounces of gold in the next twelve months, and the gold price move from $1,900 to $2,300 an ounce has done diddly squat to the stock price.  I would think an incremental $240 million of EBITDA would move the needle on a $3.5 billion market cap company.  I would think, and I would be wrong.

SBSW has a US based platinum group metals recycling business, which they keep within their mining company to be a good steward of the resource.  Being a good steward of the resource has not increased their multiples, and a spinoff of that business would probably trade at a PE of 10.  Somebody call Carl Icahn.   

When will platinum group metals move?  Platinum and Palladium are used in catalytic converters for internal combustion vehicles, and there are a lot of research opinions floating around regarding the transition from internal combustion to battery electric vehicles.  I think many of these research projections are propaganda by people who seem to think they can force change by getting everyone to believe them.  One little factoid that I picked up recently, shoutout to Trader Ferg, is that plug-in hybrid vehicles use 15% more platinum than internal combustion vehicles because the plug-in electric use their combustion engines for acceleration but not for cruising, and the sudden burst of exhaust needs more catalyst.  This is extremely bullish for platinum group metals as the world is waking up to the reality that perhaps hybrids will win out for the next twenty years or so especially when we don’t have enough electricity generation or grid capacity, much less the nickel mining to all switch over to battery electric vehicles even if the consumer wanted them, which they don’t.  A twenty year window of the dominance of hybrids over battery electric vehicles is extremely bullish for SBSW as they have not only platinum group metals, but they have built out Europe’s largest lithium mine in Finland and have a lithium project in the US as well.

Long story short, SBSW is a good operator who appears to outperform their peers, but their overarching strategy of being one third precious metals, one third platinum group metals, and one third battery metals, while being a good steward of the resources with fully integrated metals recycling and even some wind turbines for good measure is not appreciated by modern investors.  The stock price will move when platinum group metals move, because that is how SBSW is categorized in the data sets which are used by modern active investors, 60%+ of whom invest exclusively based on the results of quantitative multivariate regressions.

I have not talked about the differences between platinum, palladium or rhodium, or how the South African Rand is weak, costs are rising more slowly there than other countries.  There is also South Africa’s electricity crisis and the recent election.  All of those things affect SBSW’s competitors who are also in South Africa because South Africa has 70% of all platinum group metals.  Nature is surprisingly parsimonious with the distribution of her bounty.

How can I come up with a price target for this Frankenstein’s monster?  All materials businesses go through periods where prices are below the cost of extraction, supply shrinks, and prices rise.  Platinum group metals are going through this now.  SBSW has very little debt and will survive to get to the other side.  Without knowing what kind of multiple SBSW will fetch, my only answer is, higher, the price is going higher. 

Stock Price:

Platinum Price:

Shoutout to the ROI Channel who estimates that at the peak of the next platinum cycle, platinum miners trade for approximately 20% of the proven reserves, not their inferred reserves which require exploration to prove.  At that valuation, just the US domiciled platinum group metal reserves of 26,000,000 ounces would imply a market cap of $5.2 billion at $1,000 an ounce or $7.8 billion at $1,500 an ounce.  Be conservative and cut that number in half, and if you buy SBSW for the US domiciled Stillwater mine at a current price of $3.5 billion, which is now receiving 10% of its costs back in tax credits by Biden’s Inflation Act until expiration or repeal, you get everything else for free.  

That everything else includes:

High cost legacy South African gold mines (600,000 oz / year)

60 million pounds of Uranium in their tailings

South African platinum mines (1.9 million oz / year)

Chrome byproduct

US based platinum recycling

Europe’s largest lithium mine

European battery metal recycling buildout

An Australian zinc mine

A mineral right on a Tasmanian copper deposit

There are just too many ways for something to go right for SBSW.  It’s a bundle of lottery tickets and at some point of this commodity supercycle, something has to work.  SBSW is about 8% of my current portfolio, and I expect to hold it for more than five years.  I wouldn’t be a seller under $20 a share, and with gold prices high, we should expect the dividend to be reinstated relatively soon.

I suppose I will need a separate post about the global commodity supercycle thesis.