Yesterday was a truly disgusting day for local mining counters. The gold miners led the bloodbath, with Harmony dropping -6.4% and the platinum players not far behind. The Resource 10 index tanked -4%, taking its 30-day drop to -15%. AngloGold and DRD Gold reached fresh 52-week lows.
The coal miners had a better day, with Exxaro and Thungela both solidly in the green.
Some investors are seeing value in the commodity players at these levels. Northam Platinum released an announcement that Fairtree Asset Management has increased its stake in the company to 5.1599%. Companies are required under Takeover Law to announce every shareholding increment of 5% achieved by a specific investor. The same applies when an investor sells shares and moves through a 5% increment.
The risk to South Africa is that the commodities that protected our Rand this year are not performing very strongly anymore. Iron ore and platinum group metal (PGM) prices have come off hard, which isn't good news for our trade surplus.
I've personally decided to switch more of my ZAR into USD at these rates, as I'm not bullish on the rand in the short-term. I'll sit around in cash in USD and wait for a correction on the US market, which cannot be much further away (though I've been saying that for a while). You would've noticed the Currency Assist articles being regularly included in InceConnect, giving you an easy way to check the latest forex rates.
In company news, AVI has issued what is known as a "bland cautionary" because its cautionary announcement is, well, bland. There are essentially no details. All we know is that AVI has entered into negotiations which would have a "material effect" on the share price. It could literally be anything.
Thankfully, things get more interesting from there.
FirstRand's return on equity (ROE) for the year to June 2021 has come in at 18.4%, which is within the targeted range of 18% to 22%. ROE is a key measure for a bank and can be closely linked to the price/book value at which it trades. Pre-provision operating profit has grown 5% and normalised earnings grew 54% to R26.5bn.
Harmony has concluded a three-year wage agreement, which provides average increases of 7.8%, 7.4% and 7.0% over the next three years. Those with gold investments (like me) can only hope that the gold price grows by at least that much to cover off these increases.
The biggest news of the day was Sibanye's lithium deal in the US. The company is making strides in its battery metals strategy, which now covers the US and Europe.
There's an article from DealMakers this morning on the topic of earn-out arrangements, which are key tools in structuring transactions. An earn-out adjusts the eventual purchase price based on the way the asset or investment actually performs over time. Instead of believing the promises made by the seller, an earn-out puts a number to them. I worked with these structures many times in my corporate finance days.
The usual DealMakers summaries of the week are also included.
Have a lovely weekend!
The Finance Ghost
