BHP unlocks capital through an energy deal with BlackRock (JSE: BHP)

Here’s an innovative way to be more capital efficient

BHP holds an 85% interest in Western Australia Iron Ore (WAIO). WAIO owns an inland power network that is suitable for ownership by infrastructure investors who have very different cost of capital requirements to mining houses.

To take advantage of these structurally different return requirements, BHP has entered into a deal with Global Infrastructure Partners (GIP) – part of BlackRock – that will see GIP invest $2 billion in funding in return for a 49% stake in the inland power network. BHP will pay the new entity a tariff linked to its share of inland power over a 25-year period.

In my opinion, the announcement isn’t very clear on the exact structure. But the overall story here is one of BHP retaining operational control of the inland power infrastructure, while bringing in external capital to unlock funding that can be allocated to other projects. Sounds sensible to me.

British American Tobacco reaffirms guidance for 2026 despite a slower year in 2025 (JSE: BTI)

The group has also announced a £1.3 billion share buyback

British American Tobacco has announced an expectation of 2% growth in both revenue and adjusted profit from operations in FY25. It’s actually a good outcome in the context of global tobacco industry volumes being down 2%.

The company is on a treadmill. As demand for traditional tobacco products thankfully falls away, they are replacing that revenue with the “New Category” stuff that is allegedly healthier and thus helps them tick the ESG box and have rainbow-themed pages on the corporate website. These products grew revenue by double digits in the second half of the year, a useful acceleration vs. the full year growth in the mid-single digits.

One of the biggest issues faced by the company has been illicit products in the US market, a country that they describe as “the world’s largest nicotine value pool”. They’ve gained a lot of market share in some New Categories in that market, although revenue for Vuse is still down by high single digits for the year due to the terrible first half of the year (-13%) in the North American market.

Despite an uninspiring FY25, the company has reaffirmed guidance for 2026. This suggests revenue growth of 3% to 5%, adjusted profit from operations growth of 4% to 6% and adjusted diluted EPS up by between 5% and 8%. This shape is only made possible by share buybacks to reduce the number of shares in issue over time, with a new buyback of £1.3 billion being announced.

They are also on track to reduce leverage to within 2x to 2.5x (net debt to adjusted EBITDA), helped by the recent disposal of ITC Hotels.

Mahube Infrastructure may be leaving the JSE (JSE: MHB)

The offer price is yet another slap in the face for the concept of NAV per share

It’s becoming harder by the day for investors to put much faith in the concept of net asset value (NAV) per share. Investment holding companies have been falling like flies, with delisting prices at significant discounts to NAV. At least the discounts have generally been in the range of 20% to 30%, which is then justified by marketability discounts. An interesting step that we saw recently was RMB Holdings (JSE: RMH) recognise an impairment on its balance sheet for this marketability discount. It’s starting to feel like all investment holding companies should be doing the same.

Mahube Infrastructure takes the cake though. After a few months of negotiations, Sustent Holdings has submitted a firm intention to make an offer to shareholders. The price is R5.50, which is below the current price of R6.00 per share (admittedly a very illiquid stock) and miles below the net asset value of R10.25 as at August 2025.

They are quick to point out that the price is a premium of 54% to the 30-day VWAP leading up to the first cautionary announcement being released on 25 August. Still, that’s cold comfort for shareholders who are now faced with an offer at a 46% discount to NAV per share.

This will be structured as a scheme of arrangement. Shareholders who want to retain the shares in an unlisted environment will be entitled to do so. The company making this offer is a special purpose vehicle put together by Mergence Investment Managers and Creation Capital Services. If you work up the chain, a fund managed by Creation currently holds 34.9% in Mahube.

I don’t think anybody is really going to miss this name on the local market. For me, the bigger issue here is that the credibility of NAV per share just keeps getting worse. At what point will auditors force the issue around marketability discounts?

All is not lost for the local ferrochrome industry – Merafe and Eskom are still talking (JSE: MRF)

The negotiations will continue until the end of February 2026

The local ferrochrome industry is in crisis. The beneficiation of chrome ore into ferrochrome is a process that can best be described as an energy pig. As we all know, energy costs in South Africa have gone up substantially. On the plus side, our lights actually work all year. Remember the 12 hours a day or more of load shedding?

One of the casualties in this process of improving Eskom’s financials is Merafe, the ferrochrome-focused company that has a joint venture with Glencore (JSE: GLN). Due to the economics of energy costs vs. the selling prices for the products, Merafe is already in the process of putting two smelters into care and maintenance. This will leave them with only the Lion smelter.

Although there’s no solution to these problems just yet, Eskom has agreed to keep talking to the ferrochrome industry with the intention of finding a solution by the end of February 2026.

I’m all for local production, but if South Africa cannot produce this stuff competitively, then it means we shouldn’t be doing it. There are countless other businesses in South Africa that have to manage energy costs and find solutions. What makes ferrochrome special?

Thungela’s pre-close statement deals with a difficult year (JSE: TGA)

The share price is down 29% this year

A strong dividend yield doesn’t help you when a share price falls sharply. Thungela’s share price has been under great pressure this year, with the dividend offsetting only a portion of the decline (the total return for the year is -19%). This is the important backdrop to the pre-close statement released by the company for the year ending 31 December 2025.

Let’s start with the good news: South African export saleable production is expected to be 13.7 Mt and thus above the guided range of 12.8 Mt to 13.6 Mt. Improvements at Transnet Freight Rail have been most welcome, with volumes up 9% year-on-year. This is the momentum we need to see in South African infrastructure.

Over in Australia, a period of lower quality coal production caused challenges for sales in the first half. Thankfully, they have subsequently found buyers for the coal. They expect to achieve export saleable production of 3.8 Mt at Esham, within the guided range of 3.7 Mt to 4.1 Mt.

Coal prices unfortunately haven’t played ball this year. For example, Newcastle coal prices hit a four-year low in September 2025. Looking at the year-on-year move, the Richards Bay Benchmark average fell 15% and the Newcastle Benchmark average fell 22%. The prices realised by Thungela can differ from the benchmarks, but this gives you an idea of where things have gone directionally.

In terms of capital expenditure, total capex in South Africa of R2.6 billion is split into sustaining capex of R1.4 billion and expansionary capex of R1.2 billion. In Australia, they only incurred sustaining capex of R650 million. Across the regions, sustaining capex is either below guidance or at the lower end of guidance, while expansionary capex in South Africa was at the upper end of guidance.

The capital allocation strategy included the repurchase of 3.4% of issued share capital during 2025. It’s important to see the company doing this during a period of depressed share prices. The net cash balance is expected to be between R4.9 billion and R5.2 billion by the end of December.

The dividend policy is to pay 30% of adjusted operating free cash flow, although the board has the flexibility to add a further buffer to give them flexibility through the cycle.

Nibbles:

• Director dealings:
  • The CEO of Woolworths (JSE: WHL) sold shares worth R36.8 million to “rebalance” his portfolio. A sale is a sale, regardless of the underlying reason. Woolworths hasn’t exactly been a star performer, down 12.5% year-to-date and nearly 20% over three years.
  • Fascinatingly, on the same day, Shoprite (JSE: SHP) announced that an entity related to the CEO sold shares worth around R34.5 million to “rebalance” his portfolio. You can see how this language has become commonly used on the JSE. Shoprite’s rather demanding P/E multiple means that the share price has actually lost 7% this year! The share price is up 15% over three years though.
  • The spouse and family investment entity of a director of Lewis (JSE: LEW) bought shares in the company worth a total of R561k.
  • The company secretary of Thungela Resources (JSE: TGA) has sold shares worth R116k.

• In big news for Stefanutti Stocks (JSE: SSK), the R580 million settlement has been received from Eskom. At least R500 million will be used towards the outstanding facility with Standard Bank before the end of February 2026.

• Here’s good news for Accelerate Property Fund (JSE: APF) punters like yours truly. GCR has upgraded the credit rating from SD(ZA) (selective default) to C(ZA) (a very weak rating). Think of it as going from kakste to kakker. The journey to just being kak continues. This is how turnarounds work.

• Wesizwe Platinum (JSE: WEZ) is working towards the lifting of its suspension from trading. The interims for the six months to 30 June 2025 have been delayed as the auditor’s opinion included a disclaimer. Wesizwe wants to release financials without a disclaimer, so they are doing additional work to try and address this. This delay will push the interim results out to March 2026.