The Finance Ghost: A tale of two gold strategies

17 Jul 2022

Despite extraordinary inflation and a desire for safe-haven assets, gold has had a poor year, with counters deep in the red. Pan African Resources and Gold Fields, however, are delivering positive results.

Among the miners of the yellow stuff, Pan African Resources and Gold Fields have delivered positive shareholder returns over the past year. The other local counters are deep in the red. Interestingly, the strategies couldn’t be more different at those two businesses.

Pan African Resources is quietly getting on with it, having just achieved record production in the year ended June 2022. The strategic focus has been to reduce senior debt, something that has been achieved with great success. Debt (measured in US dollars) is down over 70% in the past 12 months, which creates genuine value for shareholders.

Gold Fields is playing the far riskier game, attempting a landmark transaction in the form of a proposed merger with Yamana Gold. The idea is that this brings high-quality, long-life assets into the group that are in attractive jurisdictions. South African investors are fearful of global mergers, having been burnt many times before.

For now, Pan African Resources has taken the lead in the sector when measured over 12 months, as Gold Fields suffered a major drop in value after announcing the Yamana deal.

Junior resource companies are pulling through

Jubilee Metals has an outrageous share price chart, up over 265% since the start of the pandemic and down over 20% this year. Junior mining is quite the rollercoaster.

This was a positive week of news for the group, with excellent progress made in the copper and cobalt parts of the business in Zambia. There was also the appointment of a new director, Tracey Kerr, with previous experience in a very senior role at Anglo American. Jubilee is on the move.

Renergen is no stranger to investors, with a PR strategy that is almost as exciting as the business itself. At the Virginia Gas Project, commercial operation is anticipated once customer sites are ready to begin accepting product. Renergen expects this to be the case by the end of July.

Another name to keep an eye on is Orion Minerals, which is busy with drilling work at the Prieska project. Orion is working on an early production strategy to take advantage of copper prices and the drilling results seem to be supportive of this approach.

The trajectory of the copper price is less supportive though, with the metal nosediving on concerns of a recession. Copper is trading at around $7,260 per tonne vs recent highs of more than $10,400.

Emira swoops on Transcend Residential Property Fund

Emira already holds 40.69% in Transcend and now the property fund wants the rest, although the structure being used is a general offer rather than a scheme of arrangement.

This means that Emira is happy to buy any amount of shares at the offer price (R5.38 per share). In contrast, a scheme of arrangement is an all-or-nothing mechanism that is accompanied by a delisting as well.

Transcend won’t delist from this offer, though few would notice if it did as there is very little trade in the stock. Transcend’s comments on the price should be interesting, as the net asset value per share as at 31 December 2021 was R8.08.

Some good news at Steinhoff (and a fine)

Let’s get the ugly news out the way first, as one wonders when the skeletons in the Steinhoff closet will be gone for good. The latest punishment for shareholders is a fine of €11.3 million payable to BaFin, the German regulator. This relates to late publication of the 2016/2017 financial statements and other disclosure shortcomings.

In much better news, Steinhoff’s European discount retail chain Pepco Group is growing revenue in leaps and bounds. It seems that as soon as Pep is in the name, discount retail is a success.

In case you’re wondering, the Pepco brand in Poland was launched by Pepkor as a European strategy and turned out to be highly successful, so the names aren’t a coincidence. The business landed up in the Steinhoff group when Christo Wiese sold Pepkor to Steinhoff in what would become his worst-ever decision.

There were concerns around Pepco Group when Andy Bond announced earlier this year that he would be stepping down as CEO for health reasons. Thankfully, the succession plan seems to be working out, with sales in the third quarter up by 17.1% on a constant currency basis. The Pepco banner delivered a whopping 28.5% growth.

There’s an aggressive roll-out strategy under way, which explains the high growth rate. Like-for-like growth was 4.9% which is still respectable.

The year-to-date result (nine months) is revenue growth of 17.4% on a constant currency basis and 350 net new stores have been opened this financial year, with a full-year target of 450 net new stores.

Profits are what really count though, so the full-year financial results will be important to thoroughly analyse.

For now, we can safely say that revenue growth is off to the moon. DM168

After years in investment banking by The Finance Ghost, his mother’s dire predictions came true: he became a ghost.

This story first appeared in our weekly DM168 newspaper, which is available countrywide for R25.

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Business Maverick

Junior resource companies are pulling through

Emira swoops on Transcend Residential Property Fund

Some good news at Steinhoff (and a fine)