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Why Sibanye-Stillwater Stock Is Slumping Today

By Matthew DiLallo - Apr 10, 2019 at 2:25PM

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The mining company is diluting investors.

What happened

Shares of Sibanye-Stillwater ( SBSW ) sold off as much as 11.8% by 1:00 p.m. EDT on Wednesday. Driving the downdraft in the mining company's stock was the sale of additional shares to shore up its balance sheet.

So what

Sibanye-Stillwater raised about $120 million in cash by selling additional shares. The offering not only diluted existing investors by 5%, but the company priced the new shares at a 2% discount to the stock's trading price over the last 30 days and 9% lower than Tuesday's closing price. Because it had to sell the shares at such a steep discount, it fell a bit short of the total it sought to raise.

A bright red arrow going down.

Image source: Getty Images.

The company needed the cash to bolster its balance sheet. Not only does Sibanye-Stillwater have a significant amount of debt outstanding but it's dealing with an ongoing labor dispute that's negatively impacted production. 

Analysts, however, saw the stock sale as a move of "desperation" by the company. Worse yet, they fear that the cash it raised won't be enough, which could lead to another offering at an even lower price later this year.

Now what

Sibanye-Stillwater remains in a tight spot. Not only is it experiencing labor issues at its gold business but it could also face a strike at its platinum operations. Add that to its weak balance sheet -- which it didn't come close to addressing with the stock offering -- and shares of the mining company could remain under pressure.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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