A Miner at a Rock Bottom Price…Is Sibanye Gold Limited (SBGL) Worth its Weight in Gold?

By Tyler R. Martin

This is a weird one for me…Sibanye Gold Limited (SBGL), a South African mining company with a market cap of 2.3 billion, boasting consistently negative earnings, no dividend, is currently dealing with a massive workers strike at some of its key gold mines and has recently flooded the market with shares. But on the plus side, its a solid company with solid, potentially explosively high yield assets, operating in an undervalued, economically depressed industry and can be bought insanely cheap at the current price. Sibanye Gold Limited (SBGL) is currently trading at a ridiculously inexpensive 3.83 dollars per share. In mid 2016 it traded at its all time high: just a few cents short of 20 dollars when gold was holding firmly North of 1300 dollars per ounce. Additionally, in 2016, Sibanye Gold Limited (SBGL) had no annoying workers strike and several spectacularly producing mines. This stands in stark contrast to today. Today, the price of gold stands at a reasonable 1278.70 dollars per ounce, however, due to a strengthening dollar, the commodities markets have been inconsistent to say the least. Recently, Sibanye Gold Limited (SBGL) has acquired Stillwater mine, a major U.S. producer of palladium, a crucial metal used ubiquitously in the auto industry. This metal is almost certainly responsible for Sibanye’s very positive Price to Cash Flow ratio of 7.84x earnings. The acquisition has long term positive implications due to the high demand of the metal, but the debt utilized for the acquisition has caused short term negative sentiment for the company. To compound these complications, a severe worker’s strike has set back the company even more significantly in recent months. Due to this strike Sibanye Gold Limited has, in order to form a stable war chest to weather the length of the strike, issued new shares to the market at ~4 dollars per share. This has further depressed the share price.

Analysis:

So, the previous 300 words of this article have listed several reasons, from the perspective of the intelligent value investor, not to buy a single share of this company, and it is for these reasons that I will not employ my usual writing strategy of producing several numeral statistics indicating why a company is worth your attention…Sibanye Gold Limited’s stats will do nothing to help my case….they are not very good. However, I have done very well in the past buying depressed miners and hanging on to them, waiting patiently for the market to turn around and, as long as the underlying company has intrinsic value, it always does. Based on past performance, its underlying assets and factoring in the obvious reasons the stock price has collapsed, it is my belief that Sibanye Gold Limited (SBGL) will turn around in a spectacular fashion once the industry rebounds and the strike is resolved. I believe that this company should be bought with both hands while the getting is good…I know I will be.

Full disclosure, I personally own shares of SBGL and have no intention of selling until the price has appreciated significantly.

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