Sibanye Stillwater Ltd (SBSW, Financial) is a South African mining company and the largest platinum producer globally. The company's stock performed well during 2021 amid rising metal prices, but headwinds could catch up this year, causing the stock price to drop.
Inflation conflicts
I'm very bearish on mining stocks at the moment because of a conflict in inflation effects. Industrial and precious metals have more than doubled over the course of the pandemic, which has made mining companies very profitable. However, now metal prices are stagnating while labor and energy prices are still rising exponentially, which could cause income statement issues for mining stocks, including Sibanye.
Renewable investments in the balance
Sibanye chose to expand its foothold into renewable energy with a lithium investment in Nevada. The $500 million deal adds to the company's lithium project in Finland, and investors may think that an optimistic future could be a result of this due to the increasing popularity of electric vehicles, which need lithium batteries.
However, I believe that the opposite may happen. Sibanye has done well by establishing itself as the largest platinum producer globally, with notable operations in Rustenburg, South Africa. However, expansion into other commodity classes creates loose ends and capital inefficiency.
I'm not saying that Sibanye won't be a great company, but I think it would've been even greater had it focused its full attention on dominating the platinum space with efficient capital allocation. Lithium could easily be in over-supply soon because it's easy to produce and many companies are jumping on the bandwagon. Sibanye's spend on Lithium is a tad naive, in my opinion. It could've embarked on another alternative such as Uranium instead, which has more potential due to being a less crowded space.
By and large, I just don't think that this company has opted for the best course of management here, which could cause decay in shareholder value.
Valuation
A productive way to judge mining stocks, in my view, is by their price-book ratio because of their asset-heavy business models. It's concerning that Sibanye's stock is currently trading above its sector average by 161.81%, especially considering that mining stocks may face a cyclical downturn soon.
Final word
Sibanye stock could face significant inflationary headwinds that could dent its prospects, and it seems overvalued as well. The stock brought much success to investors during 2020 and 2021, but I think the show is about to end soon.
