Sibanye Gold Announces a Partnership With DRDGOLD for Surface Mining
- By Alberto Abaterusso
On Wednesday, Nov. 22, shares of Sibanye Gold Limited (SBGL) rose 4.84% and closed at $5.41 on the New York Stock Exchange following the company"s announcement "to create an industry-leading surface mining partnership" with DRDGOLD Limited (DRD).
Warning! GuruFocus has detected 5 Warning Signs with SBGL. Click here to check it out.
The intrinsic value of SBGL
DRDGOLD is a mid-tier producer of gold and a leader in the world concerning the retreatment of gold tailings that are derived from surface mining activities.
DRDGOLD can currently produce something like 144,000 ounces of the yellow metal in dore bars every year, milking the precious metal from mineral reserves that as of the most recent statement are approximately 1.8 million ounces. While the mineral resources of the company are estimated in 50.67 million ounces. The company generates income and cash flow through the sale of gold poured in dore bars.
Under several agreements that Sibanye Gold Ltd. reached with DRDGOLD, the South African gold mining company will cede to DRDGOLD some selected assets used in the surface processing of gold plus some facilities for the storage of tailings in exchange of DRDGOLD"s newly issued shares.
For the execution of the contract, DRDGOLD has to issue approximately 250 million new shares and once the agreement is completed, Sibanye Gold Ltd. will have a 38% stake in DRDGOLD. The latter is valued approximately South African Rand 1.3 billion, which has been settled according to a current price of South African Rand 4.96 per share of DRDGOLD.
Neal Froneman, CEO of Sibanye-Stillwater, commented on the transaction: "We are excited about the inherent potential in the investment and look forward to partnering with DRDGOLD in growing an international, industry leading, surface retreatment business. Sibanye-Stillwater will realise immediate value for underutilised surface infrastructure and TSFs, while retaining upside to the West Rand Tailings Retreatment Project and future growth in DRDGOLD. Our stakeholders in the region also stand to benefit from the future development of this long-life surface reclamation project".
Sibanye Gold is a South African gold mining company with gold and platinum mining operations in South Africa and Zimbabwe, and after the purchase of U.S. Stillwater Mining Company, it also holds operations in Montana for the production of palladium and platinum.
Sibanye-Stillwater is currently trading at $5.41 on the New York Stock Exchange with a market capitalization of $2.94 billion, a price-book (P/B) ratio of 1.68 and an EV to Ebitda ratio of 20.36.
Year to date, the South African miner lost 22% and it is currently trading below its 200-simple moving average line.
Sibanye Gold Limited"s 52-week range is $4.27 to $10.60.
The average analyst has assigned Sibanye Gold Ltd. a target price of $7.21 per share of the South African mining company, which is a 33.27% upside in the current market value. The recommendation rating is 2.3 out of 5.
Disclosure: I have no positions in any stock mentioned in this article.
This article first appeared on GuruFocus.
Warning! GuruFocus has detected 5 Warning Signs with SBGL. Click here to check it out.
The intrinsic value of SBGL
