Market flogs Sibanye over Stillwater
it's Sibanye’s lot to appear weaker in August’s tables than even Lonmin, which has been at the top of the list of the weakest shares for some time. Only the problematic ArcelorMittal SA is weaker than Lonmin among the top 100 largest shares on the JSE.
Sibanye is being punished by the market for its takeover of Stillwater Mining in Montana in the US, which forced it to issue a large number of new shares in a rights issue. The general consensus is that it paid too much for the mining group. But now Stillwater is in the Sibanye stable, which makes the latter a major international resources player. Its CEO, Neal Froneman, must be pleased that the palladium price is still rising and that he now has control over the cash flow generated by Stillwater.
The price of palladium increased by 84% to its current level of about $870/ ounce since January last year. This can be attributed to a shortage of the precious metal, which could continue for the foreseeable future, according to several analyses. There is a possibility that the high of $907.80 of September 2014 will be tested. It will give Stillwater’s cash flow a major boost, which could give a new perspective on the price Sibanye paid for it. The metal reached a record high of $1 072.80 in January 2001. Its lowest price was reached during the 2008 crisis, when it dropped to $164/ ounce, which shows just how extremely volatile commodity prices can be.
Stillwater currently produces about 550 000 ounces of platinum group metals (PGMs) a year, of which 78% is the highly profitable palladium. The deposits it mines are regarded as the richest in the world, while its production costs are the lowest of any PGM mining group. Its production costs for the financial year to December came to $509 per PGM ounce mined. The group is currently planning expansions that could increase its production by more than 50% by 2021. Stillwater is also the biggest recycler of PGM metals in the world, which gives Sibanye valuable exposure to this important market.
More than 50% of palladium production is used in catalytic converters in vehicle exhaust systems to reduce the emission of harmful carbon and nitrous gasses.
Other platinum shares still offer investors very little to smile about, with Implats in particular that is again testing lows in the region of R35.
In the past month, there has been a considerable improvement in the number of shares that lie above their 200-day exponential moving averages (EMAs). Nevertheless, most shares still lie below their EMAs, and this sends warning signals about just how lasting the current strengthening in the market could be. Naspers*, following the success of Tencent in China, is still the market’s winner, followed by Capitec which, despite difficult economic conditions, is reaching one high after the other. Among the shares that are breaking through, Liberty Holdings looks interesting.
It gives a buying signal on its price/volume trend (PVT), which is also the case with KAP. (PVT is calculated by multiplying the percentage change in the price by the volume and by depicting the result – weekly or daily – in graphic form. Thus a small change in the price in the midst of an exceptionally high volume gives a buying signal before it’s noticed on the price graph.)
ARM also seems to be worthwhile as it has also broken through on its PVT, together with higher lows on its price graph. ■
Stillwater Mining Company is the only US miner of platinum group metals.