Potential Strike Could Send Sibanye-Stillwater Lower

The event may create a more compelling entry point

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Sibanye-Stillwater (SBGL, Financial) announced on Monday that the Association of Mineworkers and Construction Union is going to start a protected strike action at its gold operations in South Africa, where a total of 32,200 workers are employed.

The trade union, also known as AMCU, informed the company that its represented workers will start the strike during the evening shift on Wednesday.

Last week, Sibanye-Stillwater inked a new three-year wage labor contract with the National Union of Mineworkers, Solidarity and UASA. According to the terms of the deal, wages have been increased. Regardless, the gold miner said no agreement has been reached with AMCU as the trade union’s leadership is persisting with unaffordable requests.

The increased wages are what the company can afford considering the longer-term sustainability of South African gold operations.

The union represents roughly 43% of the miner's employees.

By removing a large fraction of its workforce, the strike will not only impact the financial situation of thousands of workers and their families, but also the company's production for the last three months of 2018. Therefore, investors must carefully follow the developments of this situation.

In South Africa, the company is targeting an average of 1.145 million ounces of gold production for full-year 2018, which represents nearly 40% of the miner's entire output. Sibanye-Stillwater also produces platinum group metals in the U.S. and South Africa, which is forecasted to hit 1.9 million ounces of production, or 60% of total output.

On the other hand, the strike may also cause a significant stock depreciation, creating a more affordable entry point into one of the largest precious metal producers in the world. The strike could push the closing share price of $2.7 on Friday well below the 100-day simple moving average line, reflecting a more than 5% decrease. The share price is already below the 50- and 200-day lines.

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The share price at close on Friday was 32.2% above the 52-week low of $2.02 and about 112% below the 52-week high of $5.66.

The market capitalization is $1.5 billion. The price-book ratio is 0.22 versus an industry median of 1.74 and the EV-to-EBITDA ratio is 206.9 versus an industry median of 9.3.

GuruFocus has assigned a profitability and growth rating of 8 out of 10 and a financial strength rating of 4 out of 10.

The company does not currently pay a dividend.

In the third quarter, Mario Gabelli (Trades, Portfolio) sold out of the stock.

Disclosure: I have no positions in any securities mentioned in this article.

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