Geopolitical tensions are not helping gold to gain momentum. The yellow metal collapsed 7.4% to $1,214 per troy ounce on the London Bullion Market so far this year. The commodity is also down $87.25 per ounce, compared to the year-to-date cumulative average price of $1,301.13.
Provided its negative relation with the U.S. dollar, a nearly 8% rise in the U.S. Dollar Index (DXY) over the last four months of trading is pushing the metal down. Analysts are predicting an even lower price for gold over the next weeks. However, the commodity is expected to find some resistance from the bottom and to not trade below the price of $1,200 per ounce.
For the second part of 2018 and beginning of 2019, analysts are forecasting a rising gold price. Therefore, gaining exposure to the commodity today through investment in some of its publicly traded producers is not a bad idea. Also, because with the underlying commodity is going down, chances of acquiring shares of a gold stock at a fair valuation are higher than mid-April when gold reached $1,351.45 an ounce.
Current valuations are compelling because the share price is below the 200 and 100-SMA lines, though on par with the value of the 50-SMA line. The current share price is only 48 cents off the 52-week low of $2.07 per share and 165% from the 52-week high of $6.76 per share.
Further indications that it is a cheap stock and a security that is likely trading close to a fair value are a price-book ratio of 0.23 and an EV-to-Ebitda ratio of 4.33.
The industry has medians of 1.74 for price-book ratio and of 9.3 for EV-to-Ebitda ratio.
The portfolio of Sibanye-Stillwater is one of the most diversified in the whole mining industry in terms of geographic regions, where mineral assets and interests are held and commodities produced.
The portfolio is structured in three main business divisions: Southern Africa Platinum Group Metals (PGM) operations, South African Gold operations segment and U.S. PGM operations. There is also a division for the production and sale of uranium.
In South Africa, Sibanye-Stillwater is the owner and operator of surface and underground mineral deposits for the production of gold, platinum, palladium and rhodium. The same metals are also produced and placed on the U.S. markets. The miner is a producer of other metals such as iridium, ruthenium, nickel, copper and chrome.
The company owns smelters, refineries and equipped facilities for the reuse of catalytic materials and forges gold in bars.
The strength of a mining company can also be measured in total volume of mineral reserves held on a proven and probable basis. Sibanye-Stillwater holds 28.7 million ounces of gold in proven and probable reserves including underground activities, surface rock dumps and tailings retreatment facilities and projects in South Africa. Also, in South Africa, the company has an availability of 23.186 million ounces of PGMs (platinum, palladium, rhodium and gold) and of 113.2 million pounds of Uranium.
In the U.S., the volume of platinum and palladium, or 2E PGMs, held by the South Africa miner is approximately 21.2 million ounces of metal nestled in proven and probable reserves.
Sibanye-Stillwater is reporting 544.66 million ADRs representing about 2.26 billion shares outstanding. The institutional ownership accounts for 18.23% of total shares outstanding. Van Eck Associates Corp. and Exor Investments (UK) LLP of the Agnelli family are the most prominent top shareholders with 9.84% and 7.81% stakes, respectively, in the common stock.
For the second quarter of 2018, which ended June 30, the company predicts net profit attributable to shareholders of approximately $6 million. That will be a positive turnaround from the comparable period of 2017, when the miner reported a loss of $364 million.
That is an imminent catalyst since the company should release the figures sometime the end of this month. Considering Sibanye-Stillwater has an Ebitda margin of more than 40% versus an industry median of 25%, an improvement in the company’s profit should determine some stock appreciations. Hopefully for investors of Sibanye-Stillwater, commodities will support the stock.
Disclosure: I have no positions in any stock mentioned in this article.