SBSW - Possible Russian sanctions / earning / gold / palladium play

Ticker: SBSW - Sibanye Stillwater
Description of why you are requesting DD: This is my first DD post, just an idea and wanted to run it by others since I havn’t seen Palladium discussed to date as a potential sanctions play
Applicable links to news articles or Reddit analysis: My own analysis:

Synopsis:
SBSW is a big-time domestic producer of palladium (and platinum, the two are generally found side by side in nature) . According to the USGS, they produced approximately 18,000 kilograms of PGMs with an estimated value of about $1.4 billion in 2020. They have earnings on March 3rd as well. It’s one of the few palladium miners that is on the NYSE and can be played with options (only one maybe). What I’m unsure of is if this is all already priced in. Palladium dove earlier this year, but has been rising since tensions between Russia and the Ukraine have escalated (50+% since mid December). SBSW is heating up in premarket and is currently about 20% off its 52 week high.

Bull case:

Russia produces about 45-50% of the worlds Palladium. If there are sanctions, it’s exports of this rare and expensive metal appear to be a prime target. Palladium is chiefly used in catalytic converters, which is a dying market with the ascension of EVs, but ICE vehicles are still a thing and they still need catalytic converters. SBSY also has gold producing assets in South Africa, which could see an increase in profitability if gold continues its upward trend.

Bear Case:

Constrained automobile production owing to semiconductor chip shortages and a decline in diesel passenger vehicle production are expected to result in decreased demand for palladium, platinum, and rhodium used in catalytic converters. However, I think this is a long term bear case and I’m looking at more of the short term price action of Palladium to move the stock.

China will continue to buy Palladium from Russia (they account for 30% of the world’s consumption).

“The price of the metal has already run up substantially, as traders anticipate potential supply disruptions if Russia invades Ukraine and the rest of the world imposes severe economic sanctions on Russia in response. It is currently trading at $2,400 per ounce, having climbed 52% since mid-December.” - The chips shortage crippled parts of the world economy. A Russian invasion of Ukraine would make it even worse | Fortune

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Fucked up the ticker - good start. Anyways, should be displaying now.

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This has been showing relative strength yesterday and today. Palladium/Platinum prices have been increasing with the Russian situation. If I have time later tonight I’ll dig in a bit deeper into what their earnings might be.

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This really ran today (+10%). It was strong in premarket which made sense given that Palladium and Platinum futures were up. I sold at open and was waiting for a dip to get back but I was busy when it happened and I missed it.
Most of their operations are palladium/platinum ( they do a lot of recycling in the US - I wonder how many stolen catalytic converters they end up with) and with Russia exiting the picture for the foreseeable future I could see the possibility of some strong forward guidance. I don’t think this last quarters performance will be particularly stellar given PGM (Platinum Group Metals) price history over that particular reporting period, but who knows.
I am contemplating grabbing a 17.5c and riding it up to earnings. If gambling on the earnings call itself, maybe a 20c would pay with strong forward guidance. There may be a longer play here post earnings too if the sanctions really cripple Russia’s ability to export PGM group metals. These guys also deal in gold, although it is a smaller part of their business.
They purchased a 30% stake in a Lithium project in Finland last year and a joint venture US based lithium-boron mining project at Rhyolite Ridge
Palladium/platinum futures are pretty flat currently.
19.75 might be a resistance area if it continues to crawl up.

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Palladium futures vs SBSW and PLG performance for the past week. Both of these appear to track PA and have not been very SPY correlated at all.

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SBSW had some negative news yesterday, reporting that PGM resources fell YOY from 391.9M oz. to 318.7 million oz. in the combined South African / American operations. Gold resources also fell 7% and reserves 15.9% to 13.1M oz. in SA. The stock fell a bit as a result, but maintained support above $19.
They’re also being sued for terminating a mine acquisition in Brazil.
On the positive side, they declared a maiden lithium resource of 78.5k tons (lithium oxide) and a maiden zinc mineral reserve of 1.02B lbs. I’m not sure about the price of lithium oxide, it’s used in glass and ceramics - not sure of the cost to convert to lithium carbonate for batteries. Zinc currently trades at $3,925 and has spiked the last few days. So, the maiden zinc reserve based on that number is worth over 2 billion dollars.
https://seekingalpha.com/news/3808536-sibanye-stillwater-says-metal-resources-reserves-declined-in-2021

Earnings released this morning: (https://www.mining.com/web/sibanye-stillwater-posts-record-profit-on-upbeat-commodity-prices/)
South African miner Sibanye-Stillwater reported on Thursday a stronger profit and 20% increase in South African platinum group metals (PGM) production for 2021, buoyed by a surge in commodity prices.

Sibanye’s profit increased by 13% in 2021 to 33.1 billion rand ($2.16 billion) from 29.3 billion rand in the year-ago period, in what Chief Executive Officer Neal Froneman said was a record.

At Sibanye’s South African PGM operations, production jumped to 1.9 million ounces, while all-in sustaining costs – a measure of the cost of mining – fell by 5%, against a trend of increasing costs across the mining industry.

Sibanye, which is in negotiations with unions over wages at its South African gold operations, reiterated that it has been unable to reach an agreement with organised labour representatives.

While talks with three unions are underway, the Solidarity union split from the rest on Wednesday by announcing it accepted Sibanye’s final wage offer of a 5% annual pay increase.

Edited: Not sure about lithium oxide prices - earnings update.

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2021 Results Presentation link: https://thevault.exchange/?get_group_doc=245/1646299917-ssw-H2YE-2021-results-presentation-03Mar2022.pdf
EBITDA of $4.6 billion (record), free cash flow of $2.3 billion (up 88%)
market cap at 19.5 a share * 718.5 million shares is 14 billion (approx)
EBITDA / market cap = 3.05

I’m pretty bullish on this going forward. I will be looking to start a long position.

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I think I’m lurking in your threads! Enjoyed reading this one as well. Something Conq mentioned about large oil plays being impacted by SPY correlation really stuck with me today. Once RSX gets delisted, I think developing these trades that are decoupled from SPY will help us navigate the volatility in the next few months.

Going to do some research into palladium as well but if the main market is automotive there’s still quite a backlog in production of vehicles and manufacturers may want to stockpile now in order to meet future demand. Plus all those catalytic converters needs to be replaced that the tweakers stole!

Just off the top of my head, might try to cross reference guidance from auto manufacturers and see their projections for the next couple of quarter and if it’s still bullish, any reduction/sanction from Russia would be bullish.

Look forward to contributing to this thread as well!

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Thanks MMD. SBSW has not paid SPY much mind at all. This is the one month chart of SPY vs SBSW as % changes from 0:


I’m going to be busy this weekend, but will try and add some more context and dig a bit deeper into the play as well. I am very curious about ICE and hybrid auto projections.
The urban artesian palladium extractors definitely need to have their targets restored as well. Those things aren’t cheap!

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Nice homie. Attached barchart comparison which I have useful when comparing to spy and other tickers etc. will be following as well…

Sorry didn’t come over when attached but go to drop down where it says interactive chart ans go down to etf comparison. You then add ticker ans do a bunch of other stuff.

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Just some resources I would like to add to the thread. Forgive the oversimplifications as I’m sorta dense:

  1. Here’s an article that helped me as a complimentary primer to your original post. This was a forecast for palladium prior to Ukraine/Russia breaking out:
    https://capital.com/palladium-price-forecast-and-market-outlook


    85% of palladium demand comes from auto so this is as much an auto play as anything is how I view this trade.

    This forecast took into consideration a restock in earlier part of the year but demand diminishing in the second. We’re at the first quarter and so far demand persists but so does supply chain shortages in semis, batteries, etc.

  2. Here’s another article that says palladium has been in historic deficits for years before Ukraine. Platinum can be used as a substitute to palladium in catalytic converters, up to 50%.
    https://www.marketwatch.com/story/palladium-eyes-record-prices-as-russia-ukraine-war-looks-to-deepen-supply-deficit-11646419466

  3. So basically if I’m reading this right is the world market for palladium is mainly between South African and Russia. And largely between this Russian company Norilsk, which trades as an ADR on the LSE $MNOD and SBSW in South Africa. The 6 month charts are pretty revealing:


Since the Russian confict it’s easy to see they’re like lakeview images of each other with SBSW ripping up and Norilsk knifing to death.

Looking at this chain it’s jacked AF! Only monthlies (boo!). 10,589 OI for 3/18 17.50c with IV at 70%. 18,142 OI for 3/18 20c with IV at 62%. With palladium prices nearing historic highs, how much further this has to run worries me (but I don’t know shit about fuck). Just thinking out loud. And there hasn’t been a clear cut sanction against palladium exports by NATO/West or a restriction of export by Russia (although I’m sure China would take it all for their burgeoning auto manufacturing industry.

But I do like the prices. This sort of feels like the wheelhouse for the server when ATM strikes aren’t too expensive but also not dirt cheap to cause degeneracy. Because of the reaction to Russia, and with the cheap entries for ATM strikes, I think I’m going to take a couple of calls on Monday so I can track this ticker throughout the day.

Thanks again, for the great DD! Hope I can contribute more soon.

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Wow, this is really good stuff. I think you are right that this is actually in large part tied to the recovery of automotive manufacturing even though I got into it as a potential sanctions on Russian palladium/sentiment play.
I still think, with Putin increasing agitation, that flat out bans on Russian palladium are possible. It’s also interesting to note that China is kind of backing away from Russia publicly lately, although I don’t trust a word out of their state run media. One of my concerns when I started looking into this was that China would simply vacuum up Russian palladium and that this would blunt demand.
There is more bear news for this as a potential play as well. An article posted yesterday with comments from SBSW’s CEO in which he said that he fears the conflict will disrupt supply chains further, thus hindering demand and having a negative affect on prices. We have not seen that manifest itself yet, but there is that potential. The article states that palladium hit $2,700 an oz last week - it actually hit $2,990 on Friday end of day. Absolutely ripping, along with gold and platinum.

Full disclosure, I have been playing the March 18 20c’s for a week and currently have a few that are deep green, some July 22.5cs that are quite green, and some shares I picked up for me long term play account. I’ll be monitoring future prices and probably cutting if I see any weakness given the CEO’s statements. I like the way the company is trying to position itself long term in ‘green metals’ and I don’t want to discount it’s gold operations, because gold is on an absolute tear. Platinum as well. If they start selling those lithium and zinc reserves, that’s bullish too. A lot of moving parts here, but I really, really like metals in this market. So, I’ll probably keep the shares. But, the short term play might cool off rapidly if palladium demand is deeply impacted by the war.

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So, despite the comments of the CEO, Palladium, as of the time of this post, is through the roof. Currently it sits at over $3,300 per oz., up 11%+. Platinum and Gold are also looking strong. If this holds, I’d expect strong movement from SBSW today. I might look at some April PLG 2.5c as well, depending on premarket movement.
Small observation: I have no idea how to evaluate the potential affects of short interest on a stock. But I note that there are about 7 million shares short on SBSW and they are down big. The CongDTC calc is 2.7 days. Cost to borrow is almost nothing, utilization only 50%.
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This was interesting to watch intraday as at first it looked decoupled from SPY but then it sort of flatlined while SPY slowly moved down. Could it be that sooner or later, the upward pressure of commodity prices start to have a downward pressure on the economy as a whole? But it definitely held up better that other tickers.

Here’s a hedge fund that came out today shorting SBSW:

Yeah, weird day. Palladium sat at 3300 premarket then crashed to 2900s in about 10 minutes, platinum had a similar drop, gold had a drop too but recovered nicely. I sold off just after the early morning peak, then bought back in on what I thought was a support bounce (it wasn’t) but even my new calls ended up green end of day thanks to an average in closer to the bottom.
I wonder how long Steve has been short. He certainly didn’t open that position today. I’d assume he started his position when precious metals were falling was falling, or maybe he has heeded the words of the CEO and thinks there’s a drop coming. Is there an actual article on this? All I can find with a quick Google search is this Benzinga ‘headline only’ article. Not much context there.
If palladium had kept those levels it would have been a VERY interesting day. We’ll see what happens tomorrow.

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SBSW gapped down pre-market due to an imminent strike in its SA operations

The two largest unions may walk off March 9th. The company is publicly holding firm. There is a third union that accepted the offer last week, a 5% annual pay increase.
It does not appear that the North American operations will be affected, as they struck a contract with those union a few weeks back.
Seems foolish for the company to let them go on strike when prices are high. Maybe there’s some last second deal, but who knows.

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Yes, saw this this morning. Thanks for the update. Hopefully labour issues are resolved tomorrow. Steve Weiss just did a spot on CNBC but I couldn’t find a clip for his short position. Also IBK produced this article where historically, SBSW runs after South African PMI numbers come in high:

Sorry, I can only screenshot it as there’s no link outside of IBKR:

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Any news on the strike today? I know they received noticed. Couldn’t find any news this morning.

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I see that they are locking out the other Union (Solidarity) that they came to terms with and that Solidarity has filed an injunction. Nothing about if the actual strike is taking place, but I’m assuming it is.

This Article from last month leads me to believe that the notice is given no less than 48 hours before the planned strike. Wired for more new tomorrow maybe?

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