Sibanye Stillwater Ltd (SBSW, Financial) has been on a strange journey over the past 12 months. Investors anticipated the stock to make significant gains, but it has instead shed 9% of its market value during this period of time. I think the time has come for Sibanye Stillwater's stock to realize its potential, and its shift in acquisition strategies could be the catalyst needed for the market to re-assess its valuation.
Strengthening platinum portfolio
Sibanye Stillwater has agreed on a deal with Anglo American Platinum (LSE:AAL, Financial) to purchase a 50% stake in both the Kroondal and Marikana operations in Rustenburg. Specifically, the mining giant has agreed to acquire the shares for only R1 but, in turn, take on a proportionate amount of liabilities and spend 415 million South African rands ($27 million) to rehabilitate the land.
It's estimated that the Kroondal operation will produce 1.34 million ounces of platinum concentrate and that the mine's life can be expected to reach 2029.
Sibanye Stillwater is already known as the world's largest platinum producer, and these acquisitions suggest that the firm has no intention of laying off on market expansion anytime soon. This could drive more investor enthusiasm than the copper deal it was planning previously.
Backing out of copper mega-deal
On the copper note, Sibanye Stillwater decided to back out of the $1 billion deal that would have seen the firm purchase interests in the Santa Rita and Serotte mines in Brazil.
According to Sibanye's Management, "We assessed the event and its effect and has concluded that it is and is reasonably expected to be material and adverse to the business, financial condition, results of operations, the properties, assets, liabilities or operations of Santa Rita."
The collapse of the deal will likely bring with it some Sibanye Stillwater's naysayers. However, I'd argue that this is great news for the company. If Sibanye Stillwater continues to strengthen its Platinum Group Metals division instead of diversifying into other extracts, we're likely to witness a more efficient company with proven market dominance in a particular domain. The stock market tends to price in discounts when companies have a large breadth of business units, as efficiency is usually sacrificed. In addition, the $1 billion capital allocation would've hamstrung the company's balance sheet in the near term, subsequently causing a decrease in intrinsic value.
Sibanye Stillwater is pivoting towards a better growth route with additional platinum mine acquisitions instead of the previously-planned copper mine deals in Brazil. The stock is trading at a 55.83% discount to its forward price-earnings ratio based on Wall Street's earnings estimates, suggesting that the stock is a bargain right now.