The Finance Ghost: Murray & Roberts sinks as De Beers pulls back - what lies ahead for investors?

The lab-grown diamond story continues to play out and I haven’t been wrong on it so far – it has won more and more market share over time. This is obviously a major worry for a company like De Beers, which has enjoyed decades of selling plenty of diamonds at great prices. Disruption has now come to its door and it’s unclear which way it will go in terms of pricing strategies.

But what is clear is that the pressure is being felt all the way through the value chain, and Murray & Roberts is once again drawing the short straw. Just when investors thought that things might be turning out okay at the construction group, there’s the news of extremely poor numbers thanks in part to a pullback by De Beers of its plans at the Venetia project. This project is more than 50% of Murray & Roberts’s cementation business in South Africa, so the key dependency has been exposed as a wide-open wound.

For now, there’s a trading statement that tells us that Murray & Roberts expects earnings to be down more than 20% for the six months ending December 2024. Based on the commentary about De Beers and other parts of the business (like a slower-than-expected ramp-up in North America), you can be confident that the drop is much worse than that.

The 20% threshold is the minimum required disclosure under JSE rules, so you have to be careful when the words “at least 20%” are used in a trading statement. Another clue is that the statement has been released almost two months before the end of the period, rather than just after it. Things are so bad that the company already knows the period will be a shocker.

To add to the stresses for investors, Murray & Roberts has only managed to kick out the remaining R409-million in debt to January 2026. That’s really not far away any more, especially when you consider the material uncertainty in the business and how difficult that makes debt negotiations.

As final insult to injury, the group is low on working capital and this is affecting parts of the business, but it’s a problem that is almost impossible to solve with the balance sheet in its current state.

The share price has given up all its gains this year after a drop of about 40% based on this news.

Gold is glittering

Sibanye-Stillwater shareholders were given some good news for once, with a 9% increase in Ebitda at group level in the third quarter of 2024. After suffering so much pain from platinum group metals (PGMs) and the strike in the gold business, the market welcomed this news.

But PGMs are still a problem. Ebitda fell from R2.5-billion to R1.6-billion in the South African business. In the US, Sibanye swung into a loss-making position in the underground PGM business that wasn’t fully offset by the PGM recycling business.

Clearly then, the good news had to come from elsewhere – and not from all the transition metals that Sibanye has been playing around with. No, it was ol’ faithful gold that performed really well.

Although production is lower at Sibanye, the gold price has pulled the entire group into the green from an Ebitda growth perspective, thanks to a jump in gold segment Ebitda from R344-million to R1.35-billion.

It’s much the same story at AngloGold, which just achieved its strongest production quarter of the year in Q3. It’s all well and good to see the gold price going up, but you also have to get the stuff out of the ground. AngloGold did that and banked a huge increase in Ebitda and a 17-fold improvement in free cash flow from $20-million to $347-million.

This excellent Q3 result saw headline earnings swing from a loss of $194-million a year ago to a positive $236-million in this quarter. DM

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.