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Royal Bafokeng Platinum – SELL

Renaissance Capital

14 January 2019

Metals & Mining

Figure 112: Royal Bafokeng Platinum, ZARmn (unless otherwise stated)

Royal Bafokeng Platinum	RBPJ.J	Target price, ZAR:	25
Market capitalisation, ZARmn:	7,047	Last price, ZAR:	28
Enterprise value, ZARmn:	10,392	Potential 12-month return:	-11.3%

Dec-YE	2016	2017	2018E	2019E	2020E
Income statement
Revenue	3,342	3,499	3,505	7,419	8,456
Underlying EBITDA	553	673	737	2,132	2,783
Underlying EBIT	241	312	372	1,503	2,094
Other operating items	-68	-106	-197	-188	-204
Net interest	84	85	23	-218	-248
Taxation	8	-84	-80	-307	-460
Minority interest in profit	-94	-96	-61	0	0
Attributable profit	168	-753	30	790	1,182
Headline earnings	167	109	43	790	1,182
HEPS, ZAc	87	56	21	380	568
Thomson Reuters consensus HEPS, ZAc			28	138	368
DPS declared, ZAc	0	0	0	0	0
Underlying EBIT	241	312	373	347	359
BRPM
EBIT margin	7%	9%	11%	12%	12%
Styldrift	0	0	-0	1,156	1,735
EBIT margin	-	-	-	26%	32%
EBIT	241	312	372	1,503	2,094
Income statement ratios
EBITDA margin	17%	19%	21%	29%	33%
EBIT margin	7%	9%	11%	20%	25%
HEPS growth	204%	-35%	-63%	1729%	50%
Dividend payout ratio	0%	0%	0%	0%	0%
Input assumptions
Platinum, $/oz	988	950	880	870	1,070
Palladium, $/oz	614	871	1,030	1,216	1,088
Rhodium, $/oz	694	1,108	2,218	2,379	2,163
USD/ZAR	14.70	13.31	13.24	14.31	14.14
Platinum sales volumes, koz
BRPM volumes	177	183	168	130	120
Styldrift volumes	0	0	0	190	220
Group total	177	183	168	320	340
Volume growth	-0.1%	3.3%	-8.0%	90.4%	6.3%
3PGM breakeven price, $/oz	718	682	647	652	651
BRPM
Styldrift	-	-	-	547	456
Group (mined production) breakeven	718	682	647	588	525

RBPlats - Divisional DCF valuation

Dec-YE		2016	2017	2018E	2019E	2020E
Balance sheet
Net operating assets		13,944	13,988	15,873	18,580	19,950
Investments		35	36	40	40	41
Equity		11,156	10,679	11,086	15,690	16,872
Minority interest		3,658	3,745	3,815	0	0
Net debt		-835	-401	1,012	2,930	3,119
Balance sheet ratios
Gearing (net debt/(net debt+equity))		-8.1%	-3.9%	8.4%	15.7%	15.6%
Net debt to EBITDA		-1.5x	-0.6x	1.4x	1.4x	1.1x
RoCE		1.4%	1.8%	2.0%	7.0%	8.9%
RoIC (after tax)		0.9%	2.5%	2.1%	7.1%	7.3%
RoE		1.5%	1.0%	0.4%	5.9%	7.3%
Cash flow statement
Operating cash flow		602	1,063	1,195	1,152	2,150
Capex		-1,126	-2,160	-3,164	-1,936	-1,101
Other		385	611	179	-976	-1,058
FCF		-139	-486	-1,789	-1,760	-9
Equity shareholders' cash		-82	-435	-1,768	-1,918	-188
Dividends and share buy backs		0	0	355	0	0
Movement in net debt		-82	-435	-1,413	-1,918	-188
Cash flow ratios
Working capital turnover, days		16	-11	-56	22	30
FCF yield		-1.3%	-5.0%	-17.5%	-20.0%	-0.1%
Equity shareholders' yield		-1.0%	-6.8%	-32.6%	-32.7%	-3.2%
Capex/EBITDA		203.7%	320.8%	429.4%	90.8%	39.6%
Cash conversion		-0.5x	-4.0x	-41.3x	-2.4x	-0.2x
Valuation
Calculation of target price					ZARmn	ZAR/sh
BRPM					2,202	10.6
Styldrift					2,829	13.6
Enterprise value					5,031	24.2
Investments as at 31 December 2017					36	0.2
Net debt as at 31 December 2017					401	1.9
Cash used in share buy-backs during 2018E					0	0.0
Minority interest					0	0.0
Convertible debt conversion cost at ZAR43/share					-276	-1.3
Equity value					5,191	25.0
Rounded to						25.0
Current share price on 7/1/2019						28.2
Expected share price return						-11.3%
Plus: expected dividend yield						0.0%
Total implied one-year return						-11.3%

Share price range, ZAR:

Styldrift	12-month high	35	12-month low				15
56%	Price move since high	-19.4% Price move since low					88.0%
	Calculation of WACC
	WACC	15.4%	Cost of debt				10.0%
	Risk-free rate	9.0%	Tax rate				28%
	Equity risk premium	6.0%	After-tax cost of debt				7.2%
	Beta	1.30	Debt weighting				15%
	Cost of equity	16.8%	Terminal growth rate				6.0%
	Valuation ratios
BRPM	Dec-YE	2016	2017		2018E	2019E	2020E
	P/E multiple	47.7x	58.5x		125.6x	7.4x	5.0x
44%	Dividend yield	0.0%	0.0%		0.0%	0.0%	0.0%
	EV/EBITDA	19.5x	14.4x		13.9x	4.1x	3.2x
	P/B	0.7x	0.6x		0.5x	0.4x	0.3x
	NAV per share, ZAR	58	55		53	75	81

Source: Bloomberg, Thomson Reuters, Renaissance Capital estimates

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Sibanye-Stillwater – HOLD

Renaissance Capital

14 January 2019

Metals & Mining

Figure 113: Sibanye-Stillwater, $mn (unless otherwise stated)
Sibanye-Stillwater						SGLJ.J							Target price, ZAR:					11.1
Market capitalisation, $mn:						1,718							Share price, ZAR:					10.6
Enterprise value, $mn:						3,751							Potential 12-month return:					5.0%
Dec-YE					2016	2017		2018E	2019E	2020E		Dec-YE	2016	2017		2018E	2019E	2020E
Income statement												Balance sheet
Revenue					2,128	3,449		3,745	4,342	4,465		Net operating assets	1,938	4,316		3,716	3,882	3,969
EBITDA					717	680		705	1,190	1,152		Investments, net of rehab provision	-134	-466		-390	-390	-390
EBIT					442	251		233	703	635		Equity	1,220	1,942		1,901	2,248	2,554
Other items					-79	-47		-54	-88	-105		Minority interest	0	0		1	4	6
Net interest					-94	-254		-100	-149	-126		Net debt	585	1,908		1,424	1,239	1,018
Taxation					-77	221		-23	-130	-113		Balance sheet ratios
Minority interest in profit					29	-0		-6	-14	-12
Net profit for the year					263	-333		49	348	306		Gearing (net debt/(net debt+equity))	32.4%	49.6%		42.8%	35.5%	28.5%
Headline earnings					171	-17		51	348	306		Net debt to EBITDA	0.8x	2.8x		2.0x	1.0x	0.9x
Headline EPS, ZAR					1.62	-0.12		0.29	2.02	1.74		RoCE	23.7%	6.8%		4.9%	15.4%	13.5%
												RoIC (after tax)	23.3%	22.2%		3.3%	11.8%	10.6%
Consensus HEPS, ZAR								0.33	1.28	1.57		RoE	15.7%	-1.1%		2.6%	16.8%	12.7%
DPS declared, ZAR					1.45	0.00		0.00	0.00	0.24		Cash flow statement
Underlying EBIT												Operating cash flow	573	1,120		1,134	941	1,010
Driefontein					192	54		-59	73	77		Capex (net of disposals)	-283	-458		-528	-548	-584
EBIT margin					30%	9%		-14%	14%	14%		Other cash flows	-633	-3,074		31	-88	-105
Kloof					181	123		76	177	124		Free cash flow	-342	-2,412		637	304	321
EBIT margin					30%	19%		12%	25%	20%		Equity shareholders' cash	-276	-2,262		484	185	221
Beatrix					89	16		14	51	31		Dividends and share buy-backs	-110	939		0	0	0
EBIT margin					22%	4%		4%	14%	9%		Surplus (deficit) cash	-386	-1,324		484	185	221
Rustenburg		T			1	45		83	106	99		Cash flow ratios
EBIT margin					1%	6%		10%	11%	9%			15	27		-23	-11	-8
Stillwater					0	54		133	249	258		Working capital turnover, days
EBIT margin					-	8%		11%	18%	17%		FCF yield	-13.6%	-50.6%		20.0%	10.2%	11.7%
Other					-22	-40		-13	47	46		Equity shareholders' yield	-14.3%	-79.2%		27.6%	10.7%	12.8%
Adjusted EBIT					442	251		233	703	635		Capex/EBITDA	39.4%	67.4%		74.8%	46.1%	50.7%
Income statement ratios												Cash conversion	-1.6x	134.7x		9.6x	0.5x	0.7x
												Valuation
EBITDA margin					34%	20%		19%	27%	26%
EBIT margin					21%	7%		6%	16%	14%		SoTP DCF fair value					$mn	ZAR/sh
HEPS Growth					119%	-107%		342%	597%	-14%		Driefontein					302	1.9
Dividend payout ratio					57%	0%		-	0%	14%		Kloof					755	4.8
Input assumptions												Beatrix					108	0.7
												Cooke					-290	-1.8
Gold, $/oz					1,248	1,258		1,269	1,350	1,338		Burnstone					106	0.7
Platinum, $/oz					988	950		880	870	1,070		Rustenburg					923	5.8
Palladium, $/oz					614	871		1,030	1,216	1,088		Kroondal					200	1.3
ZAR/$					14.70	13.31		13.24	14.31	14.14		Stillwater					2,908	18.4
Gold breakeven price, $/oz					976	1,161		1,288	1,177	1,231		Equity accounted income					261	1.6
PGM breakeven price, $/oz					776	1,049		1,189	1,226	1,250		Corporate and other					-1,018	-6.4
Mined volumes, koz												Operating value					4,257	26.9
												Financial instruments and rehab provision as at 31 December 2017					-466	-2.9
Driefontein lumes					516	485		331	400	420		Enterprise value					3,790	23.9
Kloof	lumes				488	529		514	523	460		Net debt as at 31 December 2017					-1,908	-12.0
Beatrix	lumes				323	292		274	266	266		Minority interest					-124	-0.8
Cooke lumes					181	100		31	28	0		19.9% stake in Aldebaran					7	0.0
Gold	lumes				1,508	1,407		1,174	1,324	1,293		Cash raised in rights issue during 2018E					0	0.0
Rustenburg		lumes			138	810		769	785	810		Equity value					1,765	11.1
Kroondal lumes					178	241		245	240	220
												Rounded to						11.1
Mimosa	lumes				91	124		122	120	120		Share price on 7/1/2019						10.6
Stillwater lumes					0	355		587	700	800		Expected share price return						4.9%
PGM's 4E		lumes			421	1,550		1,741	1,863	1,968		Plus: expected dividend yield						0.1%
Attributable Cu eq volume growth					24%	50%		-2%	9%	2%		Total implied one-year return						5.0%
Contribution to FY18E proportionately consolidated underlying EBITDA												Share price range, ZAR:
												12-month high on 15-1-2018	16	12-month low on 19-7-2018				7
					Driefontein							Price move since high	-35.9%	Price move since low				55.1%
	Stillwater				3%				Kloof			Calculation of WACC
		37%							21%			WACC	9.6%	Cost of debt				5.0%
												Risk-free rate	4.0%	Tax rate				28%
												Equity risk premium	5.5% After-tax cost of debt					0.7%
												Beta	1.30	Debt weighting				20%
										Beatrix		Cost of equity	11.2%	Terminal growth rate				2.0%
												Valuation ratios
										7%
	Plat Mile									Cooke
												Dec-YE, $mn	2016	2017		2018E	2019E	2020E
	0%		Mimosa							-4%
						Rustenburg			DRD Gold			P/E multiple	26.1x	-131.8x		35.8x	5.0x	5.6x
			6%
				Kroondal		16%						Dividend yield	4.7%	0.0%		0.0%	0.0%	2.2%
									0%
				6%								EV/EBITDA	3.5x	7.0x		4.5x	2.5x	2.4x
												P/B	1.6x	1.5x		0.9x	0.8x	0.7x
												NAV per share, $	1.3	0.9		0.8	1.0	1.1
												NAV per share, ZAR	19	12		11	14	16

Source: Bloomberg, Thomson Reuters, Renaissance Capital estimates

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Merafe Resources – BUY

Renaissance Capital

14 January 2019

Metals & Mining

Figure 114: Merafe Resources, ZARmn (unless otherwise stated)

Merafe Resources	MERJ.J	Target price, ZAR:	1.60
Market capitalisation, ZARmn:	3,492	Last price, ZAR:	1.40
Enterprise value, ZARmn:	2,832	Potential 12-month return:	28.3%

Dec-YE	2016	2017	2018E	2019E	2020E
Income statement
Revenue	5,702	5,889	5,442	5,806	6,392
Underlying EBITDA	1,133	1,665	1,512	1,207	1,368
Underlying EBIT	803	1,297	1,120	759	860
Net interest	-59	-13	7	22	1
Taxation	-212	-364	-315	-219	-241
Once-off items	0	-7	-0	0	0
Headline earnings	532	914	812	562	621
Headline EPS, ZAc	21	36	32	22	25
Headline EPS (Consensus), ZAc			35	28	29
DPS declared, ZAc	5	12	37	20	20
Dividend per share (Consensus), ZAc			24	26	21
Income statement ratios
EBITDA margin	20%	28%	28%	21%	21%
Underlying EBITDA, $/t	176	334	314	218	258
EBIT margin	14%	22%	21%	13%	13%
HEPS growth	53%	72%	-11%	-31%	10%
Dividend payout ratio	23%	33%	116%	88%	80%
Input assumptions	0.96	1.49	1.39	1.22	1.29
Ferrochrome, $/lb
Ferrochrome, $/t	2,105	3,291	3,067	2,697	2,835
Chrome ore, $/t	182	247	202	181	197
$/ZAR	14.70	13.31	13.24	14.31	14.14
Smelter utilisation rate	82%	82%	80%	83%	83%
Sales volumes, kt	437	375	364	387	375
Ferrochrome, kt
Volume growth	17%	-14%	-3%	6%	-3%
Chrome, kt	372	322	278	311	311
Volume growth	71%	-13%	-14%	12%	0%
Balance sheet
Net operating assets	4,011	3,976	4,006	4,339	4,610
Equity	3,897	4,636	5,021	4,626	4,775
Net debt (cash)	114	-660	-1,015	-286	-165
Balance sheet ratios
Gearing*	3%	-17%	-25%	-7%	-4%
Net debt/EBITDA	0.1x	-0.4x	-0.7x	-0.2x	-0.1x
RoCE	17%	26%	22%	15%	16%
RoIC (after tax)	13%	20%	13%	11%	12%

Dec-YE	2016	2017		2018E	2019E	2020E
Cash flow statement
Operating cash flow	531	1,362		1,173	736	877
Capex	-288	-404		-396	-523	-527
Other - CF	-29	-27		26	0	0
FCF	243	958		777	213	349
Equity shareholders' cash	201	949		782	229	350
Dividends	-50	-175		-427	-957	-471
Share issues (buy-backs)	0	0		0	0	0
Advances (repayments) of debt	-188	-389		-12	175	72
Surplus (deficit) cash	-37	384		343	-553	-49
Cash flow ratios	110	109		117	131	137
Working capital days**
Capex/EBITDA	25%	24%		26%	43%	39%
FCF yield	9%	27%		24%	6%	9%
Cash conversion ratio	0.4x	1.0x		1.0x	0.4x	0.6x
Equity shareholders' yield	8%	24%		20%	7%	10%
Valuation
Calculation of target price (TP)					ZARmn	ZAR/share
Equity value					3,987	1.59
Rounded to						1.60
Share price on 7-1-2019						1.40
Expected share price return						14.3%
Plus: expected dividend yield						14.0%
Total implied one-year return						28.3%
Share price range, ZAR:
12-month high on 2-7-2018	1.74 12-month high on 30-11-2018					1.26
Price move since high	-20% Price move since low					11.1%
Calculation of discount rate
WACC	16.2%	Cost of debt				10.0%
Risk-free rate	9.0%	Tax rate				28%
Equity risk premium	5.5%	After-tax cost of debt				7.2%
Beta	1.30	Debt weighting				0%
Cost of equity	16.2%	Terminal growth rate				3.0%
Valuation ratios
Dec-YE, $mn	2016	2017		2018E	2019E	2020E
P/E multiple	4.6x	4.3x		4.8x	6.3x	5.7x
Dividend yield	5%	8%		24%	14%	14%
EV/EBITDA	2.4x	2.1x		2.1x	2.9x	2.7x
P/B	0.6x	0.8x		0.8x	0.8x	0.7x
NAV per share, ZAR	1.55	1.85		2.00	1.84	1.90

*Gearing defined as net debt/(net debt +equity)

**Working capital days is defined as (working capital/revenue)*365

Source: Bloomberg, Thomson Reuters, Renaissance Capital estimates

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ArcelorMittal South Africa – HOLD

Renaissance Capital

14 January 2019

Metals & Mining

Figure 115: ArcelorMittal SA, ZARmn (unless otherwise stated)

ArcelorMittal South Africa	ACLJ.J	Target price, ZAR:	4.20
Market capitalisation, ZARmn:	4,341	Last price, ZAR:	3.84
Enterprise value, ZARmn:	4,981	Potential 12-month return:	9.4%

Dec-YE	2016	2017	2018E	2019E	2020E
Income statement
Revenue	32,737	39,022	44,335	39,500	40,374
EBITDA	190	-315	3,108	1,662	1,943
EBIT	-1,092	-1,220	2,393	870	1,130
Equity accounted income	129	139	137	0	0
Net interest	-700	-1,441	-1,748	-647	-469
Tax	-19	-2	-204	-63	-185
Profit (loss) for the period	-4,706	-5,128	-1,078	161	476
Headline profit (loss)	-2,589	-2,671	578	161	476

Dec-YE	2016	2017	2018E	2019E	2020E
Cash flow statement
Operating cash flow	-1,052	-672	5,212	1,041	1,788
Growth capex	-335	-322	-61	0	0
Maintenance capex	-1,673	-1,002	-1,183	-1,185	-1,615

FCF	-3,060	-1,996	3,968	-144	173
Equity shareholders' cash	-1,863	-2,902	2,747	-610	-165
Dividends and share buy backs	4,500	0	0	0	0
Movement in net debt	2,637	-2,902	2,747	-610	-165

HEPS, ZAc	-244	-205	53	15	44		Cash flow ratios
							Capex/EBITDA	1057%	-420%		40%	71%	83%
HEPS (Consensus), ZAc			90	48	58		FCF yield	-31.7%	-17.2%		93.7%	-2.6%	3.1%
DPS declared, ZAc	0	0	0	0	0		Cash conversion ratio	-0.7x	-1.1x		4.8x	-3.8x	-0.3x
Income statement ratios							Equity shareholders' yield	-42.9%	-66.8%		63.3%	-14.0%	-3.8%
							Working capital days**	20	17		17	17	14
EBITDA margin	1%	-1%	7%	4%	5%		Valuation
EBIT margin	-3%	-3%	5%	2%	3%
HEPS growth	82%	16%	126%	-72%	196%		Calculation of target price (TP)					ZARmn	ZAR/share
Dividend payout ratio	0%	0%	0%	0%	0%		Steel					3,319	3.04
Input assumptions (steel)							Coke and chemicals					3,383	3.09
							Other					2,515	2.30
Iron ore - (62% Fe, CIF China) $/t	58	71	66	62	62		Enterprise value					9,217	8.43
Hard coking coal, $/t	144	188	206	178	160		Financial instruments as at 31 December 2017					-1,236	-1.13
Steel sales realisations, $/t	523	665	705	572	582		Net debt as at 31 December 2017					-3,386	-3.10
EBITDA per tonne, $/t	3	-6	51	26	30		Equity value					4,595	4.20
Capex/tonne, $	33	23	21	18	25
							Rounded to						4.20
FCF/tonne, $	-51	-35	65	-2	3		Share price on 7/1/2019						3.84
$/ZAR	14.70	13.31	13.24	14.31	14.14		Expected share price return						9.4%
							Plus: expected dividend yield						0.0%
Sales volumes, kt							Total implied one-year return						9.4%
Domestic sales	3,275	3,302	3,483	3,523	3,559
Export sales	812	955	1,098	1,009	1,061		Share price range, ZAR:
Total sales	4,087	4,257	4,581	4,531	4,620		12-month high on 28-5-2018	6.08	12-month low on 7-8-2018				1.86
Volume growth	-1.1%	4.2%	7.6%	-1.1%	2.0%		Price move since high	-36.8%	Price move since low				106.5%
Utilisation rate	78%	81%	84%	85%	85%		Calculation of discount rate
Balance sheet
							WACC	14.4%	Cost of debt				10.0%
Net operating assets	15,131	12,680	9,153	9,924	10,564		Risk-free rate	9.0%	Tax rate				28%
Investments	-1,104	-1,236	-1,273	-1,273	-1,273		Equity risk premium	6.5%	After-tax cost of debt				7.2%
Equity	13,543	8,058	7,241	7,402	7,878		Beta	1.30	Debt weighting				30%
Minority interest	0	0	0	0	0		Cost of equity	17.5%	Terminal growth rate				2.0%
Net debt (cash)	484	3,386	639	1,249	1,413		Valuation ratios
Balance sheet ratios
							Dec-YE, $mn	2016	2017		2018E	2019E	2020E
Gearing*	3.5%	29.6%	8.1%	14.4%	15.2%		P/E multiple	-3.6x	-3.7x		6.2x	26.1x	8.8x
Net debt to EBITDA	2.5x	-	0.2x	0.8x	0.7x		Dividend yield	0.0%	0.0%		0.0%	0.0%	0.0%
RoCE	-5.9%	-7.6%	18.6%	7.9%	9.9%		EV/EBITDA	50.8x	-36.9x		1.4x	3.3x	2.9x
RoIC (after tax)	-18.9%	-14.3%	8.0%	-0.2%	5.5%		P/B	0.7x	1.0x		0.5x	0.6x	0.5x
RoE	-19.2%	-24.7%	7.6%	2.2%	6.2%		NAV per share, ZAR	12.4	7.4		6.6	6.8	7.2

* Gearing defined as net debt/(net debt +equity)

** Working capital days is defined as (working capital/revenue)*365

Source: Bloomberg, Thomson Reuters, Renaissance Capital estimates

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