For as long as human beings have existed, we’ve pondered whether we can make our existence last longer. With rumours swirling around that today’s 30-year-olds will be tomorrow’s centenarians, I did the research to see how much is fact and how much is fiction.
I was born in 1993, which means that I exist at the younger end of the Millennial spectrum (those born between 1981 and 1996, now aged between 28 and 43). If you believe what the life insurance salesmen have to say, then members of my generation are more likely than any generation before to reach 100 years of age.
Over the past few decades, life expectancy has seen a remarkable leap across the globe. Back in 1960 (which is the earliest year that the UN started collecting global data) the average person could expect to live to a modest 52.5 years. Fast-forward to today, and that average has jumped to 72. In the UK, where they’ve been keeping records for much longer, the shift is even starker. In 1841, a British baby girl was expected to make it to just 42 years old, while a boy could hope for around 40. But by 2016, those numbers soared, with girls reaching an average of 83 and boys 79.
So, what’s the takeaway here? Thanks to the marvels of modern medicine and the power of public health, it looks as though we’re sticking around a lot longer than we once thought possible. But is it really the upward curve we think it is – and will it continue on that trajectory indefinitely?
Argument 1: Life expectancy is up
This rise in life expectancy stems from a mix of factors that came into play in the last century, like advances in public health, better nutrition, and modern medicine. Vaccinations and antibiotics slashed childhood mortality and prevented outbreaks of disease from turning into epidemics. Workplace safety standards improved, seatbelts became a thing and fewer people smoked. Heck, we even got rid of the asbestos in our ceilings and the lead plumbing in our kitchens. All of these changes addressed what we might call “preventable deaths”, i.e. deaths caused by external factors, paving the way for more people to age as nature intended.
By 2030, one in every six people worldwide will be aged 60 or over. That means the population of those 60 and older will grow from 1 billion in 2020 to a hefty 1.4 billion in the span of a decade. Fast forward to 2050, and this group will double, hitting 2.1 billion globally, with those aged 80 and above expected to triple to 426 million.
This shift towards an older population — known as population ageing — began in wealthier countries (like Japan, where 30% of the population is already over 60). But now it’s low- and middle-income countries seeing the biggest change. By 2050, nearly two-thirds of the world’s over-60 population will be living in these regions.
Argument 2: Life expectancy is the same
It might be time to acknowledge that the idea of our current super longevity is at least a little bit fueled by myths about our ancestors. Many of us believe that the ancient Greeks or Romans would have been astonished to see anyone living past middle age. But while medical advancements have indeed transformed healthcare, the assumption that our life span has skyrocketed is somewhat misleading.
What’s actually increased isn’t how long we can live but rather how many of us do live that long. Consider that life expectancy statistics usually reflect an average, which is heavily influenced by survival rates during infancy and childhood. Much of human history has seen high child mortality rates, and this reality skews average life expectancy strongly downward.
That’s why it’s commonly believed that people in ancient Greece or Rome lived to just 30 or 35. However, this doesn’t mean that adults simply dropped dead at 36; rather, high infant mortality brought down the average. In many ancient societies, a third of infants didn’t survive to their first birthday, and half of children didn’t reach age 10. For those who survived childhood, the odds improved sharply, with some living well into their 70s or beyond.
In truth, the maximum life span in ancient societies likely wasn’t drastically different from today. Age limits in Roman politics illustrate this beautifully: the cursus honorum – the structured path of political offices for ambitious young men – required a minimum age of 30 to stand for quaestor, the first official position. For the esteemed role of consul, however, the minimum age was set at 43.
So life may have been slightly shorter on average, lacking today’s medical interventions, but it was not dramatically so. A society can have a low average life expectancy due to infant mortality and maternal risks, yet still include individuals who live into their 80s or 90s.
This is why using averages (rather than other statistical measures like the median) is dangerous.
Argument 3: Life expectancy is capped
Using demographic survivorship metrics from national vital statistics in the eight countries with the longest-lived populations – Australia, France, Italy, Japan, South Korea, Spain, Sweden, and Switzerland – as well as Hong Kong and the United States, a recent study examined trends in death rates and life expectancy from 1990 to 2019. Their findings suggest that since 1990, gains in life expectancy have slowed across all of these regions.
It makes sense if you consider that we’re comparing this period to what came before. In the early twentieth century, advances in public health and medicine sparked a longevity revolution, marked by significant leaps in life expectancy at birth. While it previously took centuries to see just a one year increase in average life expectancy, the twentieth century saw a dramatic shift, with life expectancy rising by about three years per decade.
So, does that mean that life expectancy will just keep rising, as predicted? Not exactly. While we’ve done a great job of addressing the mortality risks that we can prevent, we neither fully understand nor know how to stop ageing from happening. Until we can do that, it seems very likely that our life expectancy will remain capped under 100 years of age.
The stats are fascinating: for female life expectancy to go up from 88 to 89 years in countries with long-lived populations, there would need to be a 20.3% drop in mortality across all ages and causes. For men, raising life expectancy from 82 to 83 years would require a 9.5% reduction in mortality at every age.
Between 1950 and 2019, the age at which people die has become more predictable in long-lived populations, with fewer people dying very young or very old. This trend has occurred even as life expectancy has gradually increased. Although it’s theoretically possible that more people could start living to even older ages, there’s no strong evidence for this yet. Radical increases in lifespan seem unlikely unless major progress is made in slowing the ageing process itself.
What does it all mean?
Well… I’m still not sure, actually. I guess it’s true that life expectancy is up across the twentieth century as a whole, but not really because we’re getting older; rather, because we’re not dying younger. More of us will get older, but older means 80s, not 100s. At the end of the day, only a few of us will live to be 100 or more. That’s not very different from what happened in ancient Rome, where Cicero’s wife Terentia lived to 103 and actress Lucceia performed on stage at 100.
At the heart of all this lies our fragile understanding of ageing, this curious side-effect of mortality that we hate and crave in equal measure. Until we figure out how to stall it – or even reverse it – we really have to question our desire to live longer. After all, where’s the fun in spending the final two decades of your life as an old person?
Unless, of course, you sell retirement products. Then life expectancy is a wonderful marketing tool.
About the author: Dominique Olivier
Dominique Olivier is the founder of human.writer, where she uses her love of storytelling and ideation to help brands solve problems.
She is a weekly columnist in Ghost Mail and collaborates with The Finance Ghost on Ghost Mail Weekender, a Sunday publication designed to help you be more interesting.
AngloGold and Gold Fields are struggling to get approval for a joint venture in Ghana (JSE: ANG | JSE: GFI)
And separately, AngloGold released Q3 earnings
I’ll deal with the joint venture news first, which is that there is no news thanks to ongoing delays in getting approval for the proposed deal in Ghana. The plans for a joint venture between Gold Fields’ Tarkwa Mine and AngloGold’s Iduapriem Mine in Ghana were first announced more than 18 months ago. With national elections due to be held in Ghana in December, this deal certainly hangs in the balance.
Separately, AngloGold released earnings that remind us of just how good things are right now in the gold sector. With Q3 2024 as their strongest production quarter of the year thus far, the year-on-year jump in EBITDA is a rather ridiculous 339%! Free cash flow came in at $347 million vs. just $20 million in the base period.
The story comes through most strongly when you look at headline earnings, which swung from a loss of $194 million in Q3 2023 to positive $236 million in this period.
Q3 was a particularly strong swing, with the year-to-date numbers still showing great improvement in adjusted EBITDA from $846 million to $1.863 billion. Headline earnings on a year-to-date basis improved from a loss of $133 million to profit of $549 million.
So, although Q3 shows growth rates that reflect a poor base period, the year-to-date view is still an excellent show of strength for the company and the gold sector.
Grindrod’s great run of luck has taken a knock (JSE: GND)
Things are unstable in Mozambique
Grindrod’s investment in the Maputo port has been quite the fairytale, with Transnet as the Fairy Godmother dishing out wonderful sparkles for Grindrod shareholders who have enjoyed a rather crazy world in which companies are finding it easier to export some things via Maputo rather than South African ports.
Cue the ominous music and dark clouds in this story, as Mozambique is dealing with violence in the aftermath of its elections and the border with South Africa has been shut. Rail operations have also been suspended, so Grindrod’s port and terminal operations in Maputo and Matola have also been suspended for now.
The share price dropped 4% on the news. The market is regularly reminded of the risks of seeking growth beyond our borders in Africa.
Lesaka’s first quarter hits the mid-point of guidance for revenue and adjusted EBITDA (JSE: LSK)
This is the ninth successive quarter of delivering adjusted EBITDA guidance
Lesaka is one of the few examples you can find on our local market of a genuine tech start-up. This means a focus on building out platforms and developing the business through smart partnerships, all while working towards that magical inflection point for profitability when red suddenly turns to green and the cash starts flowing.
For now, Lesaka is still making operating losses, although I must point out that the latest quarter included $1.7 million worth of transaction costs for the Adumo acquisition. Without that, the loss of $0.05 million would obviously look a lot better.
Rather than the profits, the one thing I would highlight as a concern is the flat revenue in the Merchant Division. High growth stories need high growth to be justified! The Consumer Division is carrying the full burden right now, with revenue up 30%. Group revenue growth for the quarter was just 7%.
The mid-point of FY25 revenue guidance implies 35% year-on-year growth. Although that seems like a stretch after this quarter, the Adumo acquisition is going to play a major role here and it only closed in October.
The Canal+ deal can’t close quickly enough at MultiChoice (JSE: MCG)
The underlying business is bleeding
MultiChoice has released an interim trading statement that refers to current conditions as the most challenging environment in the group’s history. They find themselves in a difficult spot, navigating African currency issues and a deep, dark hole of investment at Showmax to try build a profitable streaming business. All of this is happening while the core business is coming under increasing threat from the streamers that got there first, like Netflix. At this point, I think the Springboks may well be single-handedly carrying the business thanks to Supersport!
Despite efforts to put through inflationary increases and cut costs, the headline loss per share has gotten a lot worse. It has deteriorated by between 45% and 49%.
MultiChoice then discloses a bunch of other metrics that they would prefer you to use, like “organic trading profit” (a -3% to +1% move) or “organic trading profit excluding Showmax” which increased by between 30% and 34%.
You could also consider adjusted core HEPS, which is expected to be roughly breakeven. This excludes the extensive forex losses on cash remittances from Africa.
If all goes ahead in the Canal+ deal, this will hopefully become their problem to solve. If that deal gets blocked, then I’m genuinely not sure how MultiChoice will manage to fund their Showmax ambitions.
Sappi finishes the year strong (JSE: SAP)
But it wasn’t enough to save the full-year result
Sappi has released fourth quarter and full-year results. Q4 did its very best to improve a tough year, with sales up 6% and adjusted EBITDA up 35%. When you compare it to the full-year result of both sales and adjusted EBITDA down 6%, you realise just how much things improved at the end of the year.
The story is one of better performance in South Africa (especially in pulp) vs. Europe, with Sappi having incurred $158 million in costs to restructure and close European assets. This contributed to the substantial increase in net debt over the 12 months from $1.1 billion to $1.4 billion.
It’s extremely difficult to try and figure out how Sappi might perform in future, as the cyclical nature of the business is made even trickier by how different the underlying paper markets are. The clear theme coming through is that Europe is taking longer than expected to improve, with demand in South Africa and North America currently dominating the story. Still, they expect EBITDA for Q1 2025 to be significantly higher than last year, so the Q4 2024 momentum should continue.
Truworths Africa is in trouble (JSE: TRU)
The share price fell 6% as the market noted the lack of growth
Truworths is not exactly the most innovative retailer around, let’s face it. This is coming through in the performance, with Truworths Africa reporting a very sad sales increase of just 0.2% for the 18 weeks to 3 November. This looks particularly rough vs. the Office UK business, which posted growth of 9.7% in constant currency i.e. that’s not thanks to the rand, for once. In fact, due to rand strength, the growth rate is only 8.1% when translated to rand!
The net impact is that Truworths group sales were up just 2.8% in rand. The company has laid the blame at the door of trading conditions in South Africa. I would wait to see how other retailers are doing before accepting that story at face value. I can’t that Truworths is doing much to improve its competitive positioning.
The bright spot at Truworths Africa is online sales, up 38% and now contributing 6.4% of the segment’s sales. Over at Office, the bright spot is in-store sales, with plans to increase trading space by 10% in the 2025 financial year. Online sales only grew by 3.2% at Office, but that’s a far more mature market for online in which 42.9% of total sales at Office are through online channels.
Nibbles:
Director dealings:
An associate of PJ Mouton bought shares in Curro (JSE: COH) worth over R15 million.
A senior executive of Gemfields (JSE: GML) exercised share options and then sold all the shares received for R2.4 million.
The CEO of Rainbow Chicken (JSE: RCL) bought shares in the company worth nearly R192k.
DRA Global (JSE: DRA) is the next name to be leaving the JSE, with a planned delisting date in early January after shareholders approved the buyback structure that creates a liquidity window prior to the delisting.
Bringing to an end many years of legal battles, the court in Brazil has ratified the BHP (JSE: BHG) settlement related to the Samarco dam disaster. The final settlement was $31.7 million, of which BHP is on the hook for half. As I noted when the settlement terms were first announced, the current BHP provision is adequate for this, thanks to the amount spent thus far and the time value of money on the settlement.
Equites Property Fund (JSE: EQU) announced that the Basingstoke and Dean Borough Council has granted full planning permission for the development of bulk at Oakdown Farm. There are a number of conditions to be met within the next year, which Equites sounds confident of meeting. This significantly improves the fair value of the property, but Equites carries it at historical cost plus capitalised interest. They therefore won’t recognise the fair value increase, but will continue to capitalise interest. Also be aware that if they sell the property, it would not be included in Equites’ distributable earnings.
Kore Potash (JSE: KP2) has issued a trading halt pending the all-important announcement on the EPC contract. This is to avoid any information being leaked into the market and acted upon before being announced. The weird thing is that the halt is only on the ASX and JSE, not the AIM in London!
Hammerson (JSE: HMN) has acquired the remaining 50% stake in Westquay, a high quality shopping mall in Southampton in the UK.
Jubilee Metals (JSE: JBL) has released a quarterly operational update. It was an important period for them, with plenty of progress made on the Zambian copper strategy in particular. They also achieved a significant uptick in chrome and PGM production in South Africa.
Visual International (JSE: VIS) is trying to fix its balance sheet by capitalising a number of loans held by related parties through issuing shares as settlement. The good news for other shareholders is that the shares are being issued at a 25.1% premium to the 30-day VWAP. The other good news is that settling the roughly R29 million in debt will restore the company to a positive net asset value position.
African Dawn Capital (JSE: ADW) announced that the suspension of trading on its shares has been lifted.
In case you’ve been wondering, there’s still a lot of legal fighting at Tongaat Hulett (JSE: TON). The latest is that an urgent application has been filed in court by RGS Group to try and stop the business rescue plan from being implemented with the Vision consortium.
African Infrastructure Investment Managers (Old Mutual) has exited its investment in Bakwena Platinum Corridor Concession. The 12.67% stake, held through its African Infrastructure Investment Fund 2, has been acquired by Gaia Fund Managers, a specialist asset manager focused on Africa’s emerging infrastructure asset class. Financial details were undisclosed.
Nampak has entered into a binding agreement to dispose of its industrial inkjet printing, laser marketing and case coding solutions business known as Nampak I&CS for a disposal consideration of R142,5 million.
Hammerson plc has completed the acquisition of the remaining 50% stake in Westquay in Southampton, UK for £135 million. The consideration will be funded from the proceeds (€705 million) received from the company’s recent disposal of its 42% stake in Value Retail.
Pan African Resources (PAR) is to acquire the remaining 92% shareholding in Tennant Consolidated Mining Group. PAR acquired an initial 8% in March for US$3,4 million and will acquire the rest of the group for $50,8 million in a share-swap transaction which will see an issue of new shares. The new shares constitute less than 6% of its issued share capital. This acquisition aims to boost PAR’s production growth in Australia’s Northern Territory, with plans for a significant processing facility and exploration potential. The initial development capital for Tennant’s Nobles Gold Project is $35,7 million, which will be fully funded using Australian debt facilities. The plant is expected to be commissioned during June 2025 and first gold by July 2025. The initial capital investment is expected to be repaid in less than three years at an average gold price of c.$2,600 an ounce.
Sirius Real Estate is to acquire a £9,05 million multi-let light industrial park in Carnforth, Lancashire representing an 11.4% net initial yield including acquisition costs. The acquisition adds 172,152 square feet of light industrial space to the UK portfolio. In addition, Sirius has completed the €3 million acquisition of a nine-acre strategic land parcel adjacent to its Oberhausen multi-use business park in the Ruhr area of northwest Germany which will provide the opportunity to expand the park.
Anglo American has agreed to the sale of its 33.3% minority interest in the Jellinbah Group, a joint venture that owns a 70% stake in the Jellinbah East and the Lake Vermont steelmaking coal mine in Australia. The stake is being sold to Zashvin, an existing 33.3% shareholder, for cash proceeds of A$1,6 billion.
As part of its ongoing strategy to focus on its mining and chemical businesses and the optimisation of its portfolio, AECI has disposed of Much Asphalt to a consortium comprising Old Mutual Private Equity’s OMPE VI GP (Old Mutual) and Sphere Investments, a Black investment holding company. The estimated disposal consideration of R1,1 billion has been structured as a ‘locked-box’ structure with an effective date of 31 December 2024.
Diversified financial services group Clientèle, has acquired Emerald Life, a life micro-insurer with an established footprint nationwide, for c.R597,5 million. The acquisition will add to the group’s expertise in the mass market segment. The Embedded Value of Emerald Life is c. R600 million. The deal constitutes a category 2 transaction and does not require shareholder approval.
The implementation conditions associated with the disposal by Sasfin Bank of its capital equipment finance and commercial property finance businesses to African Bank have, as of 31 October 2024, been met. The deal was first announced in October 2023 for a disposal consideration of R3,26 billion.
Sabvest Capital’s disposal of its direct and indirect interests in Rolfes, announced in August 2024 for R179,5 million, has received all regulatory approvals and is now unconditional.
The disposal by Transaction Capital of Nutun Transact, Accsys and Nutun Credit Health to Q Link (SPE Mid-Market Fund I Partnership), announced in August 2024, is now unconditional. The deal, a category 2 transaction, was valued at R410 million.
Mpact’s disposal of its Versapak division to Greenpath Recycling (a subsidiary of Sinica Manufacturing) for R254,7 million, announced in August 2024, has become unconditional with effect 4 November 2024.
The Competition Commission has approved the acquisition by Novus from Media24 (Naspers) of three divisions, namely On the Dot – the media supply chain management division, Community Newspapers – the local news portfolio and Soccer Laduma and Kick Off – the football publication division. The purchase consideration was not disclosed but is reported to represent c.1.6% (c.R43 million) of Novus’ market capitalisation.
The proposed joint venture between AngloGold Ashanti and Gold Fields, announced in March 2023, is still to receive the requisite approvals from the Government of Ghana. The joint venture aims to combine Gold Fields’ Tarkwa Mine and AngloGold Ashanti’s Iduapriem Mine into a single managed entity. This would extend life of mine, increase production and lower costs. In the absence of approvals, the mining houses will separately continue to improve their respective assets while maintaining engagement in relation to a potential asset combination.
Shareholders of DRA Global, the JSE- and ASX-listed multi-disciplinary consulting and engineering group focused on the mining and minerals resources sector, this week voted in favour of delisting the company. Accordingly, DRA Global will proceed with an off-market equal access share buy-back of up to 11,088,080 shares at R24.55 per share for an aggregate R271,45 million. Those still holding shares after the 20% take-up will, when the company delists, remain shareholders of an unlisted entity. The buy-back will commence on 26 November and close on 12 December 2024. The company’s listing on the JSE will terminate on 6 January 2025.
Potash development company, Kore Potash plc, has successfully completed a share subscription fundraise of US$900,000 through the issue of 25,441,268 new ordinary shares at 2.76 pence per share representing a 15% discount to the closing price on 1 November 2024. Admission of the new shares is expected to take place on 18 November. The net proceeds of the fundraise will be used to further advance the work that is expected to lead to the signing of the Engineering Procurement and Construction contract for the Kola Potash Project and to provide working capital for Kore Potash.
Shareholders of Fortress Real Estate Investments holding 75.94% of Fortress B shares in issue, elected the dividend in specie option whereby shareholders could opt to receive NEPI Rockcastle (NRP) shares in lieu of a cash dividend. A transfer of 6,054,285 NRP shares will be made retaining R641,9 million of cash not utilised to pay the cash dividend.
Zeder Investments has declared a special dividend of 20 cents per share resulting in the payment of an aggregate R308 million to shareholders. This follows the disposal of two primary farming production units, TWK and Applethwaite by Zeder Financial Services’ 87.1%-held Zeder Pome Investments and Capespan Agric.
CA Sales has, as partial settlement of its R37,5 million acquisition of the remaining shares in Mac Marketing Communications (Mauritius) and Mac Investments, issued 1,524,971 new CA&S shares.
Following the results of the scrip dividend election, Equites Property Fund will issue 25,598,068 ordinary shares in the company in lieu of an interim dividend, resulting in a capitalisation of the distributable retained profits in the company of R358,38 million.
Visual International has convinced related and non-related parties to subscribe for shares in Visual at 4 cents per share to extinguish the liabilities of the company. Visual will issue up to 746,992,210 shares, restoring the positive net asset value of the company. At the AGM to be held on 22 November 2024, shareholders will be asked to vote on increasing the authorise share of the company from 1 billion to 5 billion shares. A circular will be distributed during November.
The JSE has notified shareholders of AH-Vest that the listing of the company has been annotated with RE to indicate its failure to submit annual reports timeously and, as such, may be suspended if not submitted before 30 November 2024.
The JSE has approved the transfer of the listings of enX and Huge Group to the General Segment of Main Board lists with effect from commencement of trade on 8 November 2024. The listing requirements in this segment are less onerous for the smaller cap firms.
African Dawn Capital, suspended in July by the JSE due to its inability to meet the required deadline to publish its audited annual financial statements for the year ended 29 February 2024, has had its suspension lifted, following the release of the company’s annual report.
This week the following companies repurchased shares:
Hammerson plc continued with its programme to purchase its ordinary shares up to a maximum consideration of £140 million. The sole purpose of the buyback programme is to reduce the company’s share capital. This week the company repurchased 755,225 shares at an average price per share of 293 pence per share.
South32 announced in its annual financial statements released in August that it would increase its capital management programme by US$200 million, to be returned via an on-market share buy-back. This week 1,059,973 shares were repurchased at an aggregate cost of A$3,92 million.
In line with its share buyback programme announced in March, British American Tobacco this week repurchased a further 467,029 shares at an average price of £27.16 per share for an aggregate £12,68 million.
Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 28 October to 1 November 2024, a further 3,714,714 Prosus shares were repurchased for an aggregate €146,41 million and a further 288,872 Naspers shares for a total consideration of R1,2 billion.
One company issued a profit warning this week: Murray & Roberts.
During the week, five companies issued cautionary notices: Accelerate Property Fund, Clientèle, Vukile Property Fund, Murray & Roberts and Cilo Cybin.
Lagos-headquartered Beacon Power Services (BPS) has announced the closing of an undisclosed Series A financing round. The round was led by Partech and included participation by Finnfund, Gaia Impact and Proparco, along with previous investors Kaleo Ventures and Seedstars Africa Ventures, amongst others. BPS provides African utilities with data-driven solutions to manage the power grid, which are specifically designed to meet the unique needs of the continent’s power industry.
Proparco has renewed its partnership with NMB Bank through a commitment to a US$25 million facility package which includes a $15 million senior credit facility, a $5 million EURIZ portfolio guarantee plus a $5 million Trade Finance Guarantee. The funding will allow NMB to expand financing for exporters, agricultural SMEs and women in Zimbabwe.
Proparco has also announced a €5 million EURIZ facility for Stanbic Bank Zimbabwe to support long term finance for local Zimbabwean farmers.
Ghana’s Tendo Technologies, an online retail platform that empowers entrepreneurs, has announced the strategic acquisition of Shopa for an undisclosed sum. Shopa, which will be rebranded as Tendo Retail, provides commerce solutions to informal retailers across the West African country.
UK energy revenue management firm, SteamaCo, has merged with Nigerian digital energy solutions company, Shyft Power Solutions. Alongside the merger, there was also new funding round led by Equator VC and including Praetura Ventures and KawiSafi Ventures. Financial terms were not disclosed.
Kenyan edtech, Eneza Education has merged with Pakistan’s Knowledge Platform. The merged entity which will be headquartered in Singapore and operates as Knowledge Platform, will serve over 1,000,000 learners in Asia and Africa using mobile, web and SMS technologies.
In this episode of The Trader’s Handbook, Shaun Murison from IG Markets South Africa joined me to explore the world of commodity trading.
We discussed the nuances of trading popular commodities like gold and oil, comparing direct commodity trading to investing in mining stocks, and delved into the unique appeal and risks associated with each.
Listeners will also learn about key trading patterns, including double tops and double bottoms, and how technical analysis can guide market decisions. Tune in for insights that blend strategic knowledge with practical trading tips.
Listen to the episode below and enjoy the full transcript for reference purposes:
Transcript
The Finance Ghost: Welcome to Episode 10 of the Trader’s Handbook, featuring your host, the Finance Ghost as usual, and Shaun Murison of IG Markets South Africa. This is coming to you shortly after Halloween, which is always an exciting time for a ghost. You may have gotten some great outfits out and maybe had some scares here or there. Hopefully the market hasn’t been dishing out some scares along the way – it does tend to be quite good at that! Of course, there are many different ways to play the market and to have the good times and the not so good times that come with it, and hopefully more good times than bad.
Last week we covered forex, so there’s a good example of something you can trade on the markets outside of what might be your comfort zone. For example, certainly speaking for myself, I’ve come at this series of podcasts having historically only played around in equities. So forex is something quite new in that regard.
This week we are going to do something different as well, so I’m really looking forward to that. We are doing commodities and that of course is another very important asset class. I guess gold is always the one that springs to mind. For me, when someone says commodities, it’s amazing how that just sticks, that’s just the one that I think about. I guess we all have that one thing, but unlike in forex, you can actually choose to buy the commodity. You can choose to buy the companies that are mining those commodities. I’ve been a bit closer to commodities than I have to forex in my equities journey because it’s quite hard to find a company that specialises in forex, but you can find a whole lot of them that specialise in commodities.
Of course, what we’re talking about this week, Shaun, is the actual commodities. So let me welcome you to the show and perhaps just start there with a question around why traders might be interested in the gold itself or whatever other commodity rather than the gold miners on the equity markets?
Shaun Murison: Great. I think when you’re trading gold, it maybe just appears a little bit more simple because you’re actually trading the product. If you start dealing with a mining company, for example, let’s use gold as the example, if you’re looking at a mining company, you’re worried about all sorts of labour action, management, operational efficiencies, weather – there’s lots that can go wrong with the earnings of a company, things that can affect that share price.
When you look at the commodity, you’re not worried about the corporate around that product. You might be looking at companies in terms of what production is, how much gold is coming into the market, for example. This is seen as just a simpler way of trading the commodity. You want direct exposure to a commodity rather than just the business. With that, though, generally you forego yield. With companies who pay dividends, you’ll get a yield. Obviously with a commodity like gold, you’re just looking at trading the price and benefitting from that price movement.
If there’s a shortage of supply of gold, expect the price to rise. Then you’ll be taking long positions and hoping to benefit from the price. You’re not worried about what’s actually wrong with a business, the underlying businesses that produce that product themselves. And when you start looking at things like these very liquid commodities, gold is a huge, huge commodity. When you start looking at exchanges, I think it’s somewhere around $160 to $200 billion in gold that’s traded through the exchange on a daily basis. And as a basis of comparison, if you look at volume that’s traded through the Johannesburg Stock Exchange over the course of the week, you’re looking at about maybe R110 billion. It’s considerably bigger market, a lot more liquid, which makes it easier to get in and out of positions. And then I know we’ll talk about costs a little bit later, but your costs to trade those types of products is a lot less.
The Finance Ghost: Like everything in the markets, actually, it comes down to risk and reward, right? You forego the dividend, but I think that the mining companies can dish out some pretty big hidings on the market because bad news does happen. And what’s interesting is these mining companies, especially the gold miners, there’s no huge positive surprises. People know what the projects are. It’s not like they announced some amazing gold rush. You know, hey, we found a whole lot of gold that no one knew about. That’s just not how it works, whereas the downside risks are always possible. There’s been some kind of geological event or labour action to your point, or weather or something else. I feel like it’s always a risk on the miners that you can have a really, really bad day, whereas on a good day it’s going to be driven by the commodity price and you can pick that up by buying the commodity anyway. A bad day, yes, will be driven by the commodity price, but can also be driven by company-specific events. When you are trading on leverage, I guess that’s the problem, right?
Shaun Murison: Again, that double-edged sword. When you’re looking at those companies, the leverage is less, but the volatility is more, so the likelihood of a large percentage move range of movement during the course of a day on a share is more likely than you’re going to see on the underlying commodities price, like a gold price, for example. But then again, when you’re trading the commodity like gold, that leverage is higher so your profits and losses are magnified by more. It’s a bit of a give and take when you’re trading between the two products.
The Finance Ghost: So you’ve touched on the point there, which is the amount of leverage and it’s something we talked about on the forex show as well. Is it the same story with commodities? You can have more leverage when you’re trading commodities than when you are trading equities?
Shaun Murison: Yes. It varies depending on what commodity you’re trading, but it’s generally up to 30 times leverage. Whereas with equities, when you’re trading equities at CFDs, you’re looking at about 10 times leverage as a maximum, sometimes less.
The Finance Ghost: And I’m guessing it’s the more popular commodities where you can have more leverage, right? Because it’s a deeper market?
Shaun Murison: Yeah, a deeper market that’s a lot more liquid and so a lot more transactions going through.
The Finance Ghost: So let’s maybe touch on some of these popular commodities because as I say, gold is the first one that came to my mind. It was actually quite cool, I recently held some Krugerrands that belong to a friend of mine. It’s such a silly thing, there’s no reason why it should be cool, actually. But you’re holding something in your hand that is worth a lot of money. I don’t know if it’s the colour of the damn gold or what it is, but there’s a reason why in all the mythology gold has been a big feature – the treasure chest of gold and people stealing pirate ships to go get it and all the stories of dragons and everything else. Gold clearly is something people like. I don’t know what happens to us when we look at lots of it in a specific place, but it’s a bit different when you’re trading it on a screen, obviously, and probably for the better. You don’t get to see the beautiful yellow stuff in your hand. Is gold still the most popular of the commodities in terms of traders? I think oil would surely be right up there. What are the sort of most popular commodities for people to trade?
Shaun Murison: So gold and oil do rank amongst the top. If you look at production value in the underlying market, something like oil is actually far bigger than like the top 10 metal markets combined. But remember, there’s different types of oil products to trade, so it does get fragmented in terms of trading value. With a broker like IG, obviously I can’t speak for other brokers, but I would imagine it’d be quite similar. It’s neck and neck, you know, on a weekly basis.
If you look at oil and generally the US, crude oil seems to be the most popular. US and gold, they rank probably about 5 and 6 in terms of most popular traded products with us. There are a lot of other commodities that do have quite a lot of appetite with traders at IG. So if we look at the broad commodity spectrum, what we would offer is divided into categories.
We have energies – your oil, natural gas, gasoline. Then you’ve got your precious metals like gold, silver, palladium, platinum, and then you’ve got your base metals, your copper, zinc, iron ore, things like that.
In terms of those groups, energies, probably the most popular, that’s your natural gas, very, very popular product to trade. Crude as well.
Within the precious metals, gold and silver, as you might expect at the top, there’s been a lot of appetite for palladium. Obviously a major producer of palladium is Russia and we know what’s been going on there
And then the base metals, probably not as popular as those products, but still quite traded, predominantly your copper.
I didn’t actually mention the other one, which is, I think quite interesting, is the soft commodities. A lot of the stuff that is farmed and there, what you find a lot of interest in is coffee – coffee and cocoa.
The Finance Ghost: Got to hedge that morning cup, hey? Long coffee in your portfolio and short coffee in your cupboard as you use it up!
Let’s maybe touch on some of those different underlying categories of commodities because they all have different drivers, right? Gold is typically seen as the safe-haven play, although honestly I gave up a couple of years ago trying to really understand what moves the gold price. It’s not always high inflation because sometimes it depends on the yield you can get on Treasuries at the time, it’s a very complicated animal, but gold seems to have that sort of safe-haven flavour to it.
Oil seems to move with geopolitics and obviously demand as well. People forget how much demand can change for oil. You think, well, I have to drive somewhere. Actually you don’t always, if it’s expensive to go somewhere or it’s expensive to transport something, you just might not do it. It doesn’t always mean that it’s your home to work drive or home to school, especially at industrial level where the big users of oil can pare back or whatever the case may be. So there’s a lot of sort of economic activity in oil, whereas that isn’t really in gold, which is jewellery and some other stuff, but that’s not really what’s driving it. It’s stuff like central banks buying it, etc.
The base metals, those are also economic activity, right? Copper is seen as that kind of thing where traders are reading the news, they’re not reading a set of company accounts because that would be equities. Instead, they’re focusing on geopolitics and inflation and GDP releases as the drivers of commodities.
Shaun Murison: Yeah, it really just depends on what sort of commodities you’re talking about. Obviously geopolitical risk has been a big factor. We’ve got ongoing wars which affect oil. Then you have your OPEC+, your Organization of Petroleum Exporting Countries and Russia controlling prices. You’re looking at announcements there and demand.
When you start looking at your base metals, most of the consumption is in China, so we’re looking at the health of China. There’s obviously a lot to consider and there are lots of different products to trade.
When you look at gold, you’re looking at safe-haven appeal. Is it a hedge against inflation?
A lot of these products do obviously look at the dollar as well, so the dollar might be a consideration when you’re trading these products. Generally, a weaker dollar makes these products cheaper in other currencies.
You’re looking at soft commodities, you might be looking at weather, crops, but at the end of the day, as a technical trader, I always think that good technical analysis reflects the underlying fundamentals or macro is that it’s absorbing all that information and then it’s reflecting it in the price. That’s the great thing about looking at charting, is it’s just mathematical formulae that are absorbing every little bit of rational investment, irrational investment, sentiment and then spitting out a result.
We just look to in the short-term trade those results, trade that trend that emerges from all those factors out there. So not to oversimplify things, but that is the beauty for me about charting is that we can look at that to digest that information and help us assess direction and hopefully join that direction.
The Finance Ghost: And in terms of what we’re actually trading here, even though it’s commodities, is it still a CFD like we’ve seen in the other instruments on the IG platform? Because I’m aware there are lots of different ways to trade commodities, as futures, for example. But some of this is for large industrial players looking to hedge exposure, etc. Commodities are a very real-world thing I guess, much like forex, companies are trading in this stuff all the time. Traders looking to speculate and make a profit are almost playing on the fringes of some of these flows. The primary flows are quite industrial in nature.
Shaun Murison: Okay, firstly, everything that we offer is a type of CFD. The CFD is just a Contract For Difference and it’s a contract for the difference in price. It can be based on anything. I don’t want to over complicate things, but obviously we do have futures contracts, but it’s a type of CFD with us. You’re still trading the price and you want to buy at a lower price than you sell that futures contract. Where the CFD is different is if you’re buying a share, you don’t actually have physical ownership of the share. You don’t have voting rights. If it is a futures product like oil, it’s just looking at a future price of oil relative to interest rates and fair value.
At the end of a futures contract, you might be able to take delivery of that product, whether it be oil or gold. With CFDs, you don’t actually own the underlying asset, you’re just looking to benefit from the price. It might look like it’s a futures contract or listed and it might reflect that futures price, but it’s still a type of CFD for everything that we do offer.
The Finance Ghost: And then, Shaun, in terms of the popularity of commodities versus forex, for example, on the platform – I think what I learned on the Forex show is that there really is a huge amount of activity in that space. Same story for the equity indices, actually more so than single stocks. I always have to switch off that side of my brain that is more fundamental. I want to go and read detailed financials and understand what’s going on. That’s not how trading really works. So, how does this stack up in terms of the popularity contest?
Shaun Murison: It does vary week by week. But I’d say that the most popular products traded with IG are indices, the major forex pairs – specifically the euro dollar – and then gold and oil. And in any week, what’s at top in terms of trading activity can change. That’s a very high ranking in terms of activity. I don’t know what the last count is, but we have so many instruments available for traders, over tens of thousands of actual instruments that traders can trade with IG. When you start looking at the top 10, that is very, very highly liquid, very, very heavily traded products.
The Finance Ghost: Shaun, last question on commodities, and this is obviously a really important one, this is something that we covered when we did forex, is just the costs of trading. How do the commodities stack up? Because that’s one of the big appeals of forex, right? The costs to trade are really, really, really low compared to a lot of other things. Where do commodities sit on that scale?
Shaun Murison: Again, it’s quite a broad suite, it does vary from product to product, but the structure of the cost is the same – that is, that there’s no commission. Trading commodities is generally seen as cheaper than trading shares or equities as CFDs.
It sits in the realm somewhere between indices and forex. I think when you start looking at gold in particular, it can be as competitive as the forex market because that cost is just a spread. And remember, it’s because those markets are very, very highly liquid. A lot of trading activity and when there’s a lot of activity, generally you see the costs of those products are lower.
The Finance Ghost: Absolutely. Makes a world of sense. Charts here are going to be key, as they are in all trading activities. I think let’s maybe move on to that bit of the show where we do some interesting technical stuff. Again, as is always the case on the show, we’ll include a link in the show notes and maybe a chart or two from the excellent IG Markets Academy just showing some of these things. You really need to see them to understand them properly. So please go to the website, check out the show notes, go find the stuff. Go look on the IG Markets Academy, that’s actually where you should look. You should listen to this stuff and say, okay, that sounds interesting, let me go find that on the Academy and then go read it in detail.
Last week we did the head and shoulders pattern, which was a very interesting way of figuring out where a share price or any price might go. Actually, never mind a share price, it could be an index, it could be forex, it could be commodities, any of the above. Moving on from that this week, I think we can do something that I’ve seen play out quite often and I’ve used with reasonable success in equities, and that is specifically double tops. The inverse of that would be a double bottom. It’s much like head and shoulders, I guess, where there’s the “normal” one and then there’s the inverse one.
I’ll just hand over to you to run us through that, Shaun, double tops, double bottoms, what are they? I guess the name is a strong clue. And what do they potentially tell us?
Shaun Murison: Okay, so double tops and double bottoms, they are reversal patterns. The suggestion is that a price trend is changing direction. When you look at a double top, if you look at the price action, it takes a shape of the letter M. The suggestion is that it’s marking a top of a market before changing direction from up to down. We have a neckline, we wait for it to break below that neckline and we say, okay, well, that trend is reversing from an uptrend into a downtrend.
Inversely, when you start looking at a double bottom, it takes the shape, it’s a price pattern, whatever instrument you’re trading, it’s a pattern that takes the shape of a W and it’s suggesting that a market that has been in a downtrend is now moving into a new uptrend. So as the name implies, like you said, double top is suggesting at least a short term top in the market, be wary of possible downside to follow. And a double bottom is the suggestion of, maybe we’ve hit the bottom of that market and we could be setting up for a bit of a rally or change in trend from down to up.
Very similar in implication to that of the head and shoulders which we talked about previously. That’s obviously also a reversal pattern here and certainly something that I do look at. Certainly if I see a double top, if I’m long in the market, I see a double top, I might use that as a signal, maybe it’s about to turn, maybe I’m just going to get out of the market right now. If there’s other conviction, maybe I’m using other indicators with that, I might look at short positions and the market trades with the view that we expect that market to fall further.
Inversely with the double bottom, if I see that pattern and I was short in the market, I might be looking at exit my short position. If I had conviction, maybe using other technical indicators or other indications, I might use that double bottom as a suggested entry, long entry, a buy opportunity into that particular market.
The Finance Ghost: Yeah, Shaun, thanks for those insights into double tops and double bottoms. I haven’t used double bottoms too much, but I’ll look out for those a bit more. And double tops, as I say, I’ve had some really good successes with that in the equity space, so not surprising that it translates really well into the other stuff as well.
Thank you as always for your time this week. I think it was another great show. To our listeners, go and check out the rest of the series. There’s a lot of really great stuff to help you learn all about trading and most importantly, go and open the demo account because that is the number one way to go and learn. Rather go and make the mistakes with Monopoly money. Rather go and figure out how the system works without your real money in there just yet. And then when you feel confident, you have the ability to then fund your account if you so choose and you can get started on your trading journey. Sean, thank you so much. I look forward to doing the next one with you in a couple of weeks. And yeah, all the best for a trading week ahead.
Shaun Murison: Thank you very much. Great being here.
FirstRand’s UK motor finance business has adapted to recent legal findings (JSE: FSR)
This doesn’t change the fact that FirstRand will appeal the findings
After FirstRand got a nasty surprise in the UK courts in relation to how its motor finance business works, it had to halt all origination of new deals to try and make sure that new business being written is compliant with the current approach being taken by the courts. This affects the entire industry, not just FirstRand’s business.
The business in question in the UK is called MotoNovo and the most Novo thing about it is the new documentation and processes that make it compliant with the new legal requirements that the court believes are valid. It’s a bit awkward, as MotoNovo needs to assume that the court is right in order to continue doing business, but FirstRand is still going to appeal everything in the hope of going back to how things were, or at least avoiding harsh penalties.
MTN Rwanda is being severely hurt by regulations (JSE: MTN)
This African subsidiary is a great reminder that there are risks beyond just currencies
Adding its name to the list of MTN’s African subsidiaries that have released earnings updates, MTN Rwanda has entered the fray with a set of numbers that make for tough reading. We know from Nigeria that issues like currency weakness can really plague African businesses. MTN Rwanda is a reminder that regulatory risks are never far away either.
The problem in Rwanda relates to mobile termination rates (MTR) and the costs being borne by the business since the zero-rating of MTR in August 2023. The hope is that the regulator will introduce a suitable MTR before the end of the year, along with other important changes around international roaming that should improve the economics at MTN Rwanda.
In the meantime, the business has to suffer through revenue growth of just 1.6% and an EBITDA decline of 22.6%. This led to an ugly EBITDA margin decline of 10.9% percentage points to 34%. Profit after tax is negative, thanks to the drop in EBITDA and higher depreciation on the tower leases.
Excluding leases, capex fell 18.9%. This is an important message to the regulator: if the economics are unattractive, there will be less investment in the country.
How much will a directive on MTR help? Well, for FY24 (and remember three quarters are done already), they expect EBITDA margin of 36% – 38% without any regulatory change and 38% – 40% if change comes through. If a change right near the end of the year can make a 200 basis points impact, it’s big.
More progress in the Nampak disposal plan (JSE: NPK)
Thisraises another R142.5 million
Nampak has announced yet another asset sale, a further feather in the cap for the management team that has made such progress on the turnaround thus far.
The latest disposal is the industrial inkjet printing, laser marking and case coding business for a price of R142.5 million. The deal is too small to require further disclosure under JSE rules, so that’s as much as we will ever know.
Novus flags a jump in earnings and some acquisitions from Media24 (JSE: NVS)
It sounds like the timing of orders has played a major role here
Novus has released a trading statement dealing with the six months ended September. They’ve guided a rather insane jump in HEPS of between 96.3% and 116.3%. Before you get too excited, they go on to say that a big boost has been from orders received early this year, sitting in revenue for the interim period in this year vs. the second half in the base year. That obviously skews the interim results and would normalise over a full-year view.
They also note profits from derivative instruments as a factor. In other words, this very large jump in profits isn’t because the business is suddenly twice as good as it was a year ago.
They have been busy on the dealmaking front, acquiring On the Dot, Community Newspapers and Soccer Laduma and Kick Off from Media24. The total deal is worth 1.6% of Novus’ market cap, which implies around R43 million for the deal across all three businesses.
Decent enough numbers at Pepkor, but nothing too exciting (JSE: PPH)
You have to read HEPS carefully here
Pepkor has released a trading statement for the year ended September. Normally, this would mean a move in earnings of at least 20%, which is big news either way. Importantly, that can be a move in earnings per share (EPS), which includes once-offs and non-core items), or headline earnings per share (HEPS), which takes those things out. Big percentage moves in EPS are far more common than HEPS. This is one such example.
An important feature of this update is that the base year had an extra trading week, so you certainly can’t compare it directly to 2024 as you’re short a trading week this year. This is why HEPS from continuing operations as reported without that adjustment is expected to be -6% to +4% vs. FY23. If you adjust for the extra week and a non-recurring lease gain that made its way into HEPS, the move is an increase of 5% to 15%. That makes more sense.
On a comparable 52-week basis, group revenue was up 9.2%. Clothing and general merchandise was up 7% and the furniture, appliances and electronics segment managed 4.5%. Fintech revenue was unsurprisingly the leader of the pack, up 26.8%.
In case you’re wondering, the discontinued operation is The Building Company. Also keep in mind that Pepkor is in the process of acquiring Shoprite’s furniture business, so you can see that they are moving further into retail categories that can be supported by credit sales. The integration of the credit business into all facets of Pepkor’s business is a major growth driver for them.
There are some substantial asset impairments in this period, mainly driven by ongoing uncertainty at Ackermans, Tekkie Town and Shoe City.
There’s unfortunately absolutely no mention of the performance of Avenida in this trading statement, so we need to be patient to see how the South American story is going.
Nibbles:
Director dealings:
Adrian Gore has put some protection in place over his Discovery (JSE: DSY) shares, with an option trade with exposure of around R346 million at current prices. The structure is a put option with a strike price of R172.38 (downside protection) and a call option at R283.07 (giving away upside to fund the trade). The options expire in 2028. The current price is R182.
A non-executive director of BHP (JSE: BHG) bought shares worth $427.9k (around R5 million). A senior executive of BHP also bought shares, albeit for a much smaller A$61.8k (around R720k).
There was some reinvestment of dividends and related share awards at British American Tobacco (JSE: BTI) but I don’t usually highlight this as I don’t see it as a strong signal for the current share price. I felt it was worth sharing my viewpoint on this in case you wondered why the trades don’t usually get included here.
Alphamin (JSE: APH) has filed its Q3 financials. EBITDA is in line with what was announced for this period at the start of October, hence I’m only referencing this in the Nibbles as it isn’t actually fresh news. As a reminder, it was a huge quarter with record tin production and EBITDA up 69% quarter-on-quarter! This was driven by a 71% increase in tin sales vs. a 22% increase in tin production, a useful reminder that Alphamin’s sales can be quite lumpy when viewed on a quarterly basis.
Datatec (JSE: DTC) shareholders should be aware that there’s a scrip dividend underway. Instead of receiving a cash dividend of 75 cents, they can elect to receive Datatec shares instead. It doesn’t look as though there’s an exciting discount to entice shareholders to choose the shares. Full details are in the circular, for those who are invested here.
Cilo Cybin (JSE: CCC) is still busy with negotiations to acquire Cilo Cybin Pharmaceuticals as its first viable asset. I know that sounds daft, but it’s because the listed entity was set up as a special purpose acquisition company (SPAC) to acquire Cilo Cybin and so they adopted the name for the listed company in advance. They are basically in the process of finalising the terms of the acquisition.
Following on from recent similar announcements by various other small- and mid-caps, enX (JSE: ENX) and Huge Group (JSE: HUG) have confirmed that they are also moving to the general segment of the JSE. This is an easier regulatory framework that takes some of the burden off smaller groups.
When a trading statement starts with multiple paragraphs of fluff, you know it’s going to be a bad time
Murray & Roberts has released a trading statement dealing with the six months to December 2024. It takes a while to get to it though, as they’ve padded it with lots of commentary that serves as a “reflection” on the 2024 full financial year. Much patting of their backs later, they actually get to the point: earnings will be down at least 20% for the interim period.
If you’re a regular reader, you’ll know that “at least 20%” is massive danger zone stuff. It’s the minimum disclosure required for a trading statement, so there’s every chance that the words “at least” are working really hard here, with a potentially far more severe drop. With the share price down 22%, the market is clearly cautious. I’m not sure that it is being cautious enough.
One of the problems here is the weak balance sheet. Although the banking consortium has agreed to kick the remaining R409 million in debt out to January 2026 (which isn’t that far away anymore), Murray & Roberts is light on working capital and this is impacting their operations. It’s a real chicken-and-egg problem, as raising money is difficult when results are poor. The Optipower business is being particularly influenced by this.
In America, things are off to a slow start due to a ramp-up of work in Mexico and the USA that is behind expectations. The Cementation APAC efforts in Australia are leading to bids for projects in Indonesia, but there’s nothing guaranteed yet. And in South Africa, the Venetia project for De Beers is now a major risk because De Beers has pulled back its operational plans there.
Remember all that stuff I wrote about lab-grown diamonds and how they were hurting De Beers? It’s all happening as expected, with big downstream impacts as well.
It’s a disaster for Murray & Roberts, as the Venetia project represented more than 50% of Murray & Roberts Cementation’s business in South Africa.
Pan African Resources announces an acquisition in Australia (JSE: PAN)
They played these cards close to their chests
Pan African Resources recently joined us on Unlock the Stock (watch it here) and the theme was one of the company being able to just carry on doing what it’s doing, with a solid gold portfolio and a favourable price. They managed to do an excellent job of keeping this Tennant Consolidated Mining Group deal under wraps!
Having already acquired 8% in March 2024 (really the only clue as to what they might be doing here), they’ve decided to pull the trigger on the whole thing and acquire the remaining 92% in a share-swap deal worth $50.8 million. The 9% was acquired for cash ($3.4 million), so they will now issue shares for the rest. The total purchase price is therefore $54.2 million for 100%.
The shares being issued constitute less than 6% of Pan African Resources’ existing shares, so this is a meaningful deal but they aren’t betting the farm on it.
They expect payback on the initial capital investment in less than 3 years and the base case financial model anticipates returns above the required 20% per annum. In fact, as you read further, the mineral reserves suggest a real ungeared IRR of 144%! With an expected all-in sustaining cost of $1,300/oz and the current favourable gold price, it is quite literally a gold mine.
First gold is expected by July 2025, with the processing plant construction more than 50% complete. Importantly, there’s an opportunity for more mining exploration at the site over time.
Try not to fall off your chair – Sibanye has a positive update! (JSE: SSW)
Group EBITDA increased in the latest quarter
Sibanye-Stillwater closed over 10% higher on a day that saw the company release a positive announcement. Even before you know any other details, that’s a pretty big deal. Sibanye has been consistently drawing the short straw in the mining industry, with problems and bad luck everywhere you look.
In the third quarter of the 2024 financial year (i.e. the three months to September), group adjusted EBITDA increased by 9% year-on-year!
The SA PGM operations certainly weren’t the highlight, with ongoing pressure in the PGM basket price leading to a drop in EBITDA from R2.53 billion to R1.58 billion. The US PGM underground business is also a problem, with EBITDA down from R397 million to a loss of R108 million. US PGM recycling fell from R147 million to R98 million. A positive contribution from Reldan of R149 million vs. nil in the previous year wasn’t enough to offset that.
So, why is EBITDA higher? Where was the good news, if not in PGMs?
Look no further than gold, where a drop in production of -9.3% didn’t matter when the average gold price jumped by a wonderful 23.7%. Due to the thin layer of profitability previously, this percentage increase led to EBITDA increasing spectacularly from R344 million to R1.35 billion.
Heck, that’s so good that the board might even take home massive share-based payouts thanks to the gold price, just like they did for the PGM price previously! For context to the general irritation in the market towards the company, here’s the five-year share price chart – and yes, this is after the 10% rally:
Cheeky jokes aside, they’ve also quantified the benefit of the recently announced changes to the US tax situation: $140 million for 2023 (presumably claimed retrospectively) and $100 million for 2024. That’s certainly helpful!
Sirius makes another two acquisitions in the UK and Germany (JSE: SRE)
They are deploying the recently raised capital, as they should
The first is a multi-let light industrial park in the UK for £9.05 million at a net initial yield of 11.4% excluding acquisition costs. They say that it is fully let, so I’m unsure how they managed to get it at such a juicy yield unless the tenants are two adult stores and a nightclub! The site even comes with permission for further new industrial space. On the face of it, that sounds like a solid deal.
Sirius has also acquired a €3 million strategic land parcel in Ruhr, Northwest Germany. Unless you count the resident wildlife as tenants, there’s no net initial yield here and they will look to develop this at the right time.
Zeder declares a chunky special dividend (JSE: ZED)
The proceeds from the recent farm sales are on their way to shareholders
Zeder is in the process of selling its assets and returning capital to shareholders. The fancy term for this is a “value unlock” and it tends to take a long time.
After the recent disposals of two farming assets by an entity owned by Zeder Pome Investments (in which Zeder owns 87.1%), that entity subsequently declared a dividend and the proceeds of R309.3 million have now been received by Zeder.
This enables Zeder to declare a dividend of 20 cents per share, which works out to basically the entire amount received as a dividend from Zeder Pome. This is as it should be, considering that Zeder has promised to return capital to shareholders.
To give context to the size, Zeder’s share price is around R1.95. The latest sum-of-the-parts calculation on the website shows a value of R2.15 per share. The table from the website is a great way to see how the portfolio has been disposed of in recent years and the size of the group reduced as cash is paid to shareholders:
Nibbles:
It probably won’t come as a surprise that Fortress (JSE: FFB) shareholders are keen on the underlying stake in NEPI Rockcastle (JSE: NRP). Holders of 75.94% of Fortress shares elected to receive a dividend in species of NEPI Rockcastle shares rather than a cash dividend from Fortress. This allowed Fortress to retain R642 million in cash.
As Kore Potash (JSE: KP2) recently indicated in an update, the company is close to finalising the signing of the critical EPC contract for the Kola Potash Project. To get them across the line, they have raised $900k from certain existing shareholders as well as new institutional and high net worth investors. This is at a 15% discount to the price of the shares on 1st November. Annoying as that might feel for other shareholders, the reality is that this is a really small raise in the context of the overall investment story.
In a good example of more proofreading being required on SENS, Motus (JSE: MTH) has made changes to the boar committee. What’s that saying again about the bulls make money, the bears make money and the pigs get slaughtered?
London Finance & Investment Group (JSE: LNF) has always been a bit of a mystery to me. The company’s assets are mainly a portfolio of global equity stocks and now those have been sold anyway, with a cash balance of £23 million sitting on short-term deposit. I’m genuinely not sure what the plan is here.
AECI to sell Much Asphalt to an Old Mutual Private Equity consortium (JSE: AFE)
AECI is focusing on mining and chemicals
The name Much Asphalt is worth a chuckle, but the selling price of R1.1 billion means that this is a serious business with an entertaining name, with AECI selling 100% in the company to Old Mutual Private Equity and Sphere Investments.
Much Asphalt is South Africa’s leading independent manufacturer and supplier of bituminous products for use in infrastructure in roads, airport runways and other applications. This is probably a good time to sell, as a positive story can be told around a potential uptick in infrastructure investment in South Africa. AECI wants to focus only on mining and chemicals, so this is an non-core asset that they will be happy to see the back of.
The purchase price could be as high as R1.5 billion, depending on adjustments to the purchase price. That’s a significant difference to the likeliest deal price of R1.1 billion. The net asset value (NAV) as at December 2023 was R1.59 billion, so either way it’s a discount to NAV. Profit after tax for the year ended December 2023 was R74 million, so this is a classic case of a business with an inadequate return on equity that must therefore be sold at a discount to NAV. Based on those earnings, it actually seems like a decent price for AECI on what are admittedly outdated numbers.
This is a Category 2 transaction, so no shareholder vote is required and a detailed circular won’t be released.
Have we entered the Age of Altron? (JSE: AEL)
There’s a huge turnaround here
In the past year, Altron’s share price has more than doubled. The latest numbers show exactly why that is the case. Although there are a bunch of different ways to slice and dice it based on continuing vs. discontinued operations, the underlying story is one of a vast increase in profit and a 60% jump in the interim dividend.
The most sensible metric to look at is the one that adjusts for the sale of the ATM business and excludes Altron Document Solutions (ADS). I’m not sure why that is their view to be honest, as they are hanging onto ADS because the offers received for the business weren’t good enough to justify selling it. ADS is now a positive EBITDA contributor (R30 million in this period), which makes me even more confused about why management would prefer you to look elsewhere.
The Platforms segment, which includes Netstar, grew revenue by 10% and EBITDA by 37%. Netstar is just over half of that segment and had a strong story to tell, supported by a 54% jump in EBITDA at Altron FinTech (a powerful annuity revenue business) and a modest 4% increase in EBITDA at Altron HealthTech.
The IT Services segment is where the complications related to ADS and the sale of the ATM business can be found. If you’re happy to go with management’s view of ignoring both, then revenue increased 2% and EBITDA was down 21%. There are businesses in here that rely on project spending at major customers rather than a growing annuity book, which is why this is a far less lucrative part of the group than Platforms.
Another disappointment was Distribution, where Altron Arrow’s revenue fell 11% and EBITDA was down 7%. The broader market is struggling, with the business just trying to win market share in a falling market and protect gross margins.
Altron Nexus is the only discontinued operation in this set of accounts and improved its performance significantly, with the loss of R332 million shrinking to a loss of R14 million despite a substantial decrease in revenue. When you can achieve better results off a much smaller revenue base, there’s inevitably a working capital benefit that releases cash – in this case to the tune of R35 million.
This helps them invest elsewhere, with group working capital of R1.6 billion (up R144 million) and R359 million in capex in this period. Netstar is a particularly capital intensive business (as any fans of Karooooo will know), but offers a great annuity revenue stream.
Anglo sells a chunk of the Australian steelmaking coal assets (JSE: AGL)
They are in advanced stages to sell the rest
Anglo American is looking to exit the steelmaking coal assets in Australia. They’ve announced a major milestone on that journey, with the disposal of 33.3% in Jellinbah Group for $1.1 billion. The purchaser is Zashvin, a fellow 33.3% shareholder in Jellinbah.
Anglo doesn’t operate those underlying mines and doesn’t market any of the production volumes either, so this sounds like it was a passive stake that doesn’t fit with Anglo’s strategy to focus on copper, premium iron ore and crop nutrients.
In the first half of 2024, the 33% interest in Jellinbah contributed $154 million to Anglo’s underlying EBITDA, so they’ve received a multiple of around 7.15x here.
Collins grows its dividend by 25% (JSE: CPP)
And the market liked it
Collins converted to a REIT in the second half of the previous financial year. The group has a portfolio of 120 properties in South Africa, with only 6% exposure to office. Most of the portfolio sits in industrial and distribution centres (66%) and 28% is in convenience retail.
So, Collins was well positioned to benefit from improved conditions in South African property. Things are also looking better in the Namibian portfolio, with the sale of a large office property in Windhoek being finalised. They expect to sell the rest of the Namibian portfolio in the next year or so, depending on how negotiations go.
Collins likes Europe and wants to own more property there. They already have six properties in Austria and four in the The Netherlands, with the latter held through a consortium.
It’s an interesting portfolio that drove an increase in the interim dividend at Collins of 25% to 50 cents per share. The net asset value is up 18.9% to R15.01. The share price closed 14% higher at R11.50.
I must highlight the loan-to-value ratio, which is on the high side at 50%. It’s down slightly from 51% as at the end of February 2024. Although higher debt looks clever when rates are coming down, that’s well above the average leverage seen among listed REITs.
Discovery has released its presentation to debt investors – and it’s worth looking at (JSE: DSY)
Things are looking much more interesting for them these days
Discovery has a domestic medium term note programme, which means the group raises debt funding through listed instruments on the JSE. Investors often forget that this is a major part of our local market, connecting institutional capital with companies.
Discovery held a debt investor call and has made the presentation available at this link. There are some pretty solid slides in there, including this gem:
I also enjoyed the this portion of the next slide, which shows that Discovery Bank still has a long way to go in terms of requiring investment from the group:
enX impacted by lack of load shedding (JSE: ENX)
With Eskom functioning these days, there’s much less demand for power solutions
enX has released results for the year ended August 2024 and they have gone the wrong way, with revenue from continuing operations down 3% and HEPS from continuing operations down 11%. They also show a significant drop in net asset value per share, but there were large special distributions and so I don’t think it’s worth focusing on that number as it tells you very little about performance.
enX saw a cash outflow of R190 million from operating activities this year. Despite this, they were happy to pay out capital distributions of R1.1 billion. The key was the disposals during the year, particularly Eqstra. Group cash is up from R303 million a year ago to R772 million and total interest-bearing liabilities decreased slightly to R278 million.
Things will need to improve in the business, particularly as the Power segment suffered a 17.4% decrease in revenue and a nasty 48% drop in profit to R53 million. That more than offset the good work done at AG Lubricants to improve margins and unlock a profit increase from R77 million to R102 million despite flat revenue. Also within the Lubricants segment, the share of profit from associate Zestcor increased from R19 million to R32 million.
In the Chemicals segment, it was a flat story in revenue and profit before tax, although the underlying performance is more nuanced as the base period included a major once-off insurance receipt. In other words, they actually achieved better margins this year.
With load shedding hopefully gone for good, enX finds itself in an awkward position for growth from here.
Exemplar adds its name to the property companies doing well at the moment (JSE: EXP)
The fund is focused exclusively on rural and township retail
Exemplar holds 26 retail assets and is having a rather good time with them right now, with revenue for the six months to August up by 9.8%. This has driven an increase in net property income of 12.15%.
Of course, what investors in property funds care most about is the dividend. The interim dividend is up 9.3% to 70.25 cents per share. At the current share price of R11.50, that’s an annualised yield of 12.2%.
The current vacancy rate of 3.52% is above target, but at least renewed leases are showing escalations of 4.19%. The loan-to-value ratio of 37.9% is higher than 36.5% as at February 2024, mainly due to debt used to fund property improvements within the portfolio.
The net asset value per share is R15.26, so it is trading at a discount of roughly 25% to book value.
MTN Uganda banks another strong quarter (JSE: MTN)
If only this business was larger in the group context
Among MTN’s African subsidiaries, Uganda is consistently one of the better ones. The latest quarter is a continuation of the story thus far this year, with total revenue up 18.6% and EBITDA up 22.2%. This means a 150 basis points EBITDA margin expansion from 50.5% to 52.0%.
For the nine months year-to-date, revenue is up 19.6% and EBITDA 22.3%, at an EBITDA margin of 51.7%. It’s been a strong year and Q3 has set them up for a strong finish to the year.
As you know by now if you’re a regular reader, the key metric to focus on in the African telecoms businesses is capex intensity. Many of them generate cash but then spend every last bit on capex. Again, Uganda is an exception here, with capex intensity (capex as a percentage of revenue) down 210 basis points for the nine months, from 14.9% to 12.8%.
Of course, there’s never a dull moment in Africa, with MTN Uganda having to dispute a tax assessment received from the Uganda Revenue Authority. Let’s hope Uganda doesn’t go the way of Nigeria, with the government ruining the growth story and sentiment.
Oando is catching up on financial reporting (JSE: OAO)
There was a flurry of announcements to get things up to date
Although Oando has released its quarterly results for the March and June periods separately, it makes the most sense to just look at the interim period i.e. the quarters combined. They also released results for the year ended December 2023 which are now incredibly outdated and thus ignored for the purposes of giving a summary here.
The Nigerian energy group saw a decrease of 15% in upstream production across oil and natural gas, as well as a 35% drop in traded crude oil volumes and a 55% drop in traded refined petroleum products within the trading business.
Despite this, revenue was up 51%. It then gets weird again, with operating profit down 30% and profit after tax down 44%. As seems to be the norm for Nigerian companies, the dislocations are being driven by exchange rate translations, particularly on net finance costs.
The stock is still suspended from trading, but this should get them to the point where the suspension can be lifted.
Redefine’s performance dipped thanks to interest costs (JSE: RDF)
If rates keep dropping, it will help them greatly
Redefine has released results for the year ended August 2024. They reflect a 4.5% dip in SA REIT funds from operations (FFO) and a 2.7% decrease in group distributable income. If you’re thinking that perhaps it was a case of a great second half after a tough first half, think again – it’s actually the other way around. I went back and found their interim results, which shows growth in distributable income per share of 6.0% to 25.34 cents. Based on a calculation to isolate just the second half of the year, it looks like distributable income per share was down 10.6% in H2!
In South Africa, the full year net property income growth was 4.7% on a like-for-like basis. There are still negative reversions unfortunately, improving a bit from -6.7% last year to -5.9% this year. There are no prizes for guessing that the office portfolio is where the biggest problems are found, with average negative reversions of -13.9%. That’s actually worse than -12.1% in the previous year!
The EPP portfolio in Eastern Europe saw revenue up 4.3% on a constant currency basis or 9.6% as reported. Net property income was up 5.2% on a like-for-like basis.
So, where did it go wrong? Interest costs included in distributable income jumped by 23.2% for the year, clearly a much higher growth rate than anything the underlying properties could produce. This is due to a higher cost of debt and a major acquisition in December 2023 that put another R1.8 billion on the balance sheet. The full impact of that debt was felt in the second half of the year and only partially in the first half, explaining the H2 vs. H1 performance.
With a loan-to-value ratio of 42.3%, Redefine’s balance sheet is still in decent shape overall. They took on a major acquisition at a time when the office portfolio is still dragging down the overall story and interest rates have been high, so this feels like a case of short-term pain for potential long-term gain.
They expect things to improve modestly in FY25, with forecast distributable income per share of between 50 and 53 cents. They just reported 50.02 cents for FY24, so despite the branding of the report using the word “upside” approximately a zillion times, the reality is that there isn’t much upside here based on management’s base case.
At R4.97 per share and after a dividend of 42.52 cents for the year, a yield of 8.6% just doesn’t feel appealing enough here. I think this one may have run out of puff, as evidenced by the shape of the share price chart:
Nibbles:
Director dealings:
In the big money club, Michiel Le Roux has refinanced another portion of the huge hedge over his Capitec (JSE: CPI) holding, this time through options referencing R785 million worth of shares with a put price of R2,862.74 and a cap of R5,407.39
Des de Beer has bought R506k worth of shares in Lighthouse (JSE: LTE).
Sirius Real Estate (JSE: SRE) announced that Fitch Ratings affirmed its BBB investment grade credit rating with a stable outlook.
Mpact (JSE: MPT) announced that the disposal of the Versapak division has been completed. The final price received by Mpact was R254.7 million after adjusting for stock and liabilities, as is customary in such transactions.
HCI (JSE: HCI) announced that the farmout agreement with TotalEnergies Namibia in respect of Blocks 2913B and 2912 has become unconditional. This of course relates to HCI’s oil and gas interests off the coast of Namibia.
The JSE has been on quite a drive recently to make changes to its rules in favour of small- and mid-cap companies. This is no doubt in response to the flurry of delistings we’ve seen in the past few years. One such change is the proposed expansion of the FTSE/JSE All Property Index. If they go ahead, Spear REIT (JSE: SEA), Dipula Income Fund B (JSE: DIB), Octodec (JSE: OCT) and Schroder European Real Estate (JSE: SCD) would qualify for inclusion in the index. The important thing about this is that index-tracking funds that buy the All Property Index would then need to buy these property counters as well. Investors in such funds would then have exposure to these names as part of their portfolio under the new rules, albeit with very small weightings.
Equites Property Fund (JSE: EQU) offered a dividend reinvestment alternative that was elected by holders of 66.98% of shares in the company. This means the fund has successfully retained R359 million in equity through this process, which is why I refer to such structures as miniature rights issues.
If you’re invested in Caxton (JSE: CAT), keep an eye out for the release of a presentation being delivered to institutional investors. Although it frustrates me that retail investors don’t get these privileges unless companies do the right thing and engage directly through platforms like Unlock the Stock, at least Caxton is planning to make the presentation available.
Hailed as one of the top renewable energy (RE) programmes globally, South Africa’s Renewable Energy Independent Power Producer Procurement (REIPPP) programme has matured and evolved since its launch in 2011, helping drive the country’s energy transition to an economically sustainable low-carbon future.
“Serving as a cornerstone of South Africa’s Integrated Resource Plan (IRP), the REIPPP programme aimed to address the country’s electricity supply challenges, secure a reliable energy supply and diversify the country’s energy mix to promote sustainable economic growth,” explains Taona Kokera, Director and Infrastructure Finance Advisory lead at Forvis Mazars in South Africa.
The early phases: wind and solar
The early phases of the REIPPP primarily focused on wind and solar power projects, with a competitive bidding process used to select independent power producers (IPPs) to develop and operate renewable energy projects. These projects were then connected to the national grid, providing a stable and renewable source of electricity.
The REIPPP primarily relied on a feed-in tariff (FiT) model to incentivize renewable energy investment, guaranteeing IPPs a fixed price for the electricity they supplied to the grid for a specified period. This provided a stable revenue stream, mitigating the risks associated with renewable energy projects.
The world-class programme attracted significant investment from local and international funders, with the government-guaranteed, inflation-linked real returns making projects bankable and reducing the cost of funding.
“Structuring the finance deals needed to fund large-scale RE utility projects in the early REIPPP rounds were a key component in managing costs and arriving at a competitive cost per kilowatt hour bid,” adds Johan Marais, Partner: Corporate Finance at Forvis Mazars in South Africa.
“The private sector led a large portion of these investments, with a large appetite from institutional investors like commercial banks, private equity and sovereign funds to fund these projects.”
These funding lines included a mix of senior debt funding in the form of long-term limited or non-recourse funding and direct equity investments. As risks declined and projects started to deliver stable returns, banks and equity partners have also sold down exposure via the secondary market.
Evolution in renewable energy
Over time, the REIPPP expanded to include other renewable energy technologies such as concentrated solar power (CSP) and biomass.
“However, projects that did not meet the REIPPP guidelines were not feasible due to existing regulations, as it was impossible to wheel the power,” explains Kokera.
As the programme advanced, the government made regulatory adjustments to address challenges and optimise its effectiveness by revising bidding rules, grid connection procedures, and financial regulations.
Coupled with improvements in the RE generation and storage technology, tariffs fell sharply over successive tender bidding rounds, to the point where round four projects were among the lowest-priced grid-connected RE projects in the world.
A major turning point in the country’s energy transition then came as South Africa’s energy crisis deepened, with demand far outstripping supply in 2022 and 2023.
“In an effort to incentivise industry innovation, the government took the bold decision to liberalise the RE sector in South Africa, which has ushered in the next phase in the country’s energy transition,” explains Kokera.
The government’s landmark decision to increase the embedded generation threshold from 1 MW to 100 MW, and later remove it, effectively lowered the major hurdle preventing mass private sector investment in RE projects in the country.
“By removing the licensing constraints and implementing tax incentives, the RE sector has seen rapid and sustained growth in private commercial and industrial (C&I) projects,“ elaborates Kokera.
Companies across the spectrum used the opportunity to leverage the dispensation, which coincided with a dramatic decrease in the costs of components like solar panels.
“The logistic networks that bring these products into the country also become more efficient, with more in-country manufacturing taking place, which also helped to lower costs,” adds Kokera.
The need for innovative funding
These companies, especially intensive users in the mining, manufacturing and agricultural sectors, turned to various innovative funding models to get these projects off the ground and make them viable, especially larger-scale embedded projects that require large capital outlays.
“While banks were unwilling to fund projects outside the REIPPP programme initially, commercial or alternative lenders have entered the C&I space en mass, funding on-balance sheet projects via a combination of property and asset finance,” elaborates Marais.
“Larger projects generally require a combination of equity, mezzanine finance and debt funding, with lower cost, longer tenor debt often preferred because it offers better investor returns and lowers the tariff.”
Companies that lack the sites or financial resources to efficiently self-provision renewable energy enter into off-take agreements with IPPs through long-term Power Purchase Agreements (PPA).
Typically, IPPs rely on project finance as there is no balance sheet behind these companies to fund transactions. As such, IPPs will generally look to equity to fund the construction phase and debt in the operational phase.
“Forvis Mazars is also engaged in numerous refinancing deals to give IPPs access to cheaper funding lines to support long-term project sustainability,” says Marais.
Driven by the rapid pace and scale of C&I projects in the country, South Africa has become the largest and most mature C&I solar market on the continent, according to Wood Mackenzie data.
“The country’s C&I solar boom is set to continue, with a strong expected pipeline of 18 GW through 2027 buoyed in the medium-term by a new wheeling mechanism, which the City of Cape Town is currently trialling,” adds Kokera.
“The REIPPP programme has played an instrumental role in driving the growth of the IPP industry in South Africa and paved the way for a flourishing C&I sector,” continues Marais.
“With C&I set to dominate the RE landscape going forward, ongoing innovation to adapt funding models and procurement processes will support a dynamic IPP market that leads the country into a more energy-efficient era of cleaner, more reliable and cost-effective electricity production,” he concludes.
About Forvis Mazars
Forvis Mazars is a leading global professional services network. The network operates under a single brand worldwide, with just two members: Forvis Mazars LLP in the United States and Forvis Mazars Group SC, an internationally integrated partnership operating in over 100 countries and territories. Both member firms share a commitment to providing an unmatched client experience, delivering audit & assurance, tax and advisory services around the world. Together, our strategic vision strives to move our clients, people, industry and communities forward.
Forvis Mazars is the brand name for the Forvis Mazars Global network (Forvis Mazars Global Limited) and its two independent members: Forvis Mazars LLP in the United States and Forvis Mazars Group SC. Forvis Mazars Global Limited is a UK private company limited by guarantee and does not provide any services to clients.
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