Unlock the Stock is a platform designed to let retail investors experience life as a sell-side analyst. Corporate management teams give a presentation and then we open the floor to an interactive Q&A session, facilitated by the hosts.
In the 41st edition of Unlock the Stock, Tharisa Plc returned to the platform to update the market on recent numbers and the strategy going forward. The Finance Ghost co-hosted this event with Mark Tobin of Coffee Microcaps and the team from Keyter Rech Investor Solutions.
The Ghost Wrap podcast is proudly brought to you by Forvis Mazars, a leading international audit, tax and advisory firm with a national footprint within South Africa. Visit the Forvis Mazars website for more information.
This episode covers:
Italtile and Cashbuild as interesting plays for an improvement in consumer discretionary spending.
Quilter releasing strong results that reminded the market of how good that business is.
AngloGold and Gold Fields with such different production results, yet Gold Fields is out there making an acquisition.
Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:
Attacq and Hyprop found a buyer for the African assets (JSE: ATT | JSE: HYP)
The properties are in Nigeria and Ghana, with both local funds having been co-invested in them
After a week of plenty of South Africa vs. Nigeria noise on local social media, we saw another breaking of ties here – thankfully not in the form of a over-hyped beauty pageant. Attacq and Hyprop are both disposing of their stakes in Ikeja City Mall in Nigeria and three malls in Ghana, namely the Accra Mall, Kumasi City Mall and West Hills Mall.
The buyer is Lango Real Estate Limited. This is important information when you see how the deal is structured.
You have to read quite carefully to figure out the apportionment of value. Attacq holds 25% of the shares in the Nigerian holding company, with Hyprop holding the other 75%. On the Ghanaian side, it’s a bit more complex. Attacq and Hyprop hold 50% of the shares in the holding company, but their economic interests are actually 73.12% and 26.88% respectively. In turn, that holding company has various stakes in the malls in Ghana.
With respect to the Nigerian disposal, the total disposal price of $32 million is apportioned as $24.1 million to Hyprop and $7.9 million to Attacq. For Ghana, the total price of $27.3 million will be apportioned as $20 million to Hyprop and $7.3 million to Attacq.
But here’s the trick: the amounts are settled in shares in Lango, not in cash. 20% of the received shares will be held in escrow until the earliest of 30 June 2025 or six months after the deal is completed. This is surely a better outcome than holding those problematic properties directly, but it’s not a clean break. We will need to see if the funds can monetise these holdings.
Attacq will hold 4.3% in Lango after these deals and has confirmed that it doesn’t intend to hold the shares for the long-term. Hyprop also doesn’t intend to hold the shares and hasn’t indicated the percentage that will be held, but we can safely assume that it will be around 13%.
Aveng has swung into profitability (JSE: AEG)
We don’t know how big the profits are yet, but there are profits
Aveng has released a trading statement for the year ended June 2024. It’s a fun one, as there’s no percentage move indicated. Instead, the great news is that the group expects positive HEPS for the year vs. a headline loss per share of A$61.6 cents in the comparable period.
They do give further details on the underlying segments. McConnell Dowell, which operates in Australia, New Zealand and the Pacific Islands and Southeast Asia (i.e. where there used to be rugby teams capable of beating us), expects to see a year-on-year improvement. They highlight strong cash flows, which is important. The Building segment also operates in that part of the world and expects growth in revenue. Across both of those segments, work in hand has come off peak levels. The third segment is Mining, which operates in South Africa as Moolmans. Operating earnings have been under pressure there, with only marginal profitability expected.
The group is sitting on a net cash position of A$173 million, with previously reported term debt at McConnell Dowell settled during the year.
Investment bankers have been appointed to assist with a strategic review of the business. This suggests that more corporate activity could be on the horizon, as such bankers aren’t famous for suggesting “do nothing” as a strategy.
Results are due on 20 August.
Brait’s rights offer was well supported (JSE: BAT)
The underwriter wasn’t needed in the end– but there was some very clever structuring
Hot on the heels of a strong outcome for the rights offer at Pick n Pay, we have news of another rights offer that the market was happy to throw money at. Brait managed to get 96.1% of the available shares away to shareholders following their rights, with the remaining 3.9% going to those who put in excess applications.
Excess applications were equivalent to 66.1% of the total shares being offered, so there was plenty of headroom before the underwriter would’ve been needed.
The underwriter was one of the Dr. Christo Wiese entities and would’ve been quite happy to take up more shares I’m sure. Fascinatingly, to avoid a scenario where a mandatory offer would’ve been triggered with approval timelines that would’ve been problematic for the rights offer, Standard Bank had acquired legal ownership of Titan’s stake in Brait and entered into a total return swap with Titan. As Titan now holds a 37.4% economic interest in Brait after the excess applications went through, the unwind of this swap is presumably going to trigger a mandatory offer when the voting rights revert to Titan. That sounds like a rather cute legal solution that no doubt had a strong legal opinion sitting behind it in terms of Takeover Law.
More growth at CA Sales Holdings (JSE: CAA)
This is such a solid company
CA Sales Holdings has released a trading statement dealing with the six months to June. Unsurprisingly, given the recent performance of the company and the coherent strategy, the trading statement has been triggered for the right reasons.
HEPS will be up by between 17% and 22%, with the company highlighting that there has been organic growth across all the operations. In a group that has built a reputation for bolt-on acquisitions, this is really good news. There’s nothing better than an acquisitive strategy accompanied by solid organic growth i.e. growth in the underlying businesses that were previously acquired or built.
Detailed results are due on 2 September. The share price is up 30% this year and over 80% in the past 12 months!
Castleview’s listed subsidiary Emira must have had FOMO over the Poland opportunity (JSE: EMI | JSE: CVW)
I’m just not sure why they are doing it with indirect exposure rather than direct property deals
I get nervous when I see listed funds buying up non-controlling stakes in other funds offshore. What is the point, exactly? If institutional investors are looking for that kind of exposure, they can usually achieve it directly. The inevitable outcome of layered exposure is that the stake just trades at a discount to true underlying value.
Despite numerous examples of this happening in the market and being reversed years later in expensive “value unlock” transactions, Emira has now dived into a 25% stake in DL Invest, a property fund headquartered in Luxembourg and focused on Poland. Emira has the option to take this stake to 45%, which is just a very large non-controlling stake.
The DL Group has 50 properties in Poland across various types, with a 17-year track record. There’s little doubt that they are proper operators. It’s just the underlying rationale for the deal that is questionable for me.
The transaction structure sees DL Invest issuing B shares and loan notes to Emira for €55.5 million. The option to take the stake to 45% is also for equity and loan notes. Emira has until January 2025 to issue an exercise notice, so this option doesn’t even have much time value to it.
I find it hard to believe that this is the best way they could have gotten exposure to the Eastern European growth story.
And remember, Castleview (which is separately listed) holds 59.3% of Emira. There’s very little liquidity in Castleview though, as the shares are tightly held.
Gold Fields wants full ownership of the Windfall Project (JSE: GFI)
It’s an exciting name, if nothing else
Gold Fields currently holds a 50% interest in the Windfall Project in Canada alongside Osisko Mining, a company listed on the Toronto Stock Exchange. It won’t be listed for much longer it seems, as Gold Fields wants full ownership of the Windfall Project and has made a cash offer for all the listed Osisko shares at a price representing a 55% premium to the 20-day VWAP.
There’s a windfall alright – for the shareholders in Osisko, at least.
Gold Fields points out that the deal extinguishes certain liabilities related to the 2023 joint venture transaction, like a deferred cash payment and exploration obligation. I guess one way to extinguish a C$375 million obligation is to buy the company you owe for C$2.16 billion instead.
Jokes aside, there’s obviously a strategic rationale here around controlling an asset in a tier-1 mining jurisdiction. But after disappointing production numbers recently, I suspect that Gold Fields shareholders will probably be more interested in seeing operational improvements at the company rather than another deal – especially when Gold Fields needs to tap into bank funding to execute this deal. As if that isn’t risky enough, this isn’t even a producing asset yet. The Windfall Project is still being developed.
Another tough year for Italtile – but signs of improvement (JSE: ITE)
The second half was better than the first half, unsurprisingly
Like sector peer Cashbuild, Italtile is trying to claw its way back after an incredibly tough couple of years. A trading statement for the year ended June 2024 is a reminder that things only got a bit better very recently, with most of that year suffering through high levels of load shedding, poor consumer confidence and high interest rates. At least two of the three issues have largely gone away, with the third one hopefully improving soon.
Much as we can hopefully look forward to a better performance going forward, that doesn’t do much to save the financial year that just ended. HEPS fell by between 4.7% and 10.3%, which is pretty decent under the circumstances. Coming in at 118.7 cents to 126.2 cents, the mid-point suggests a Price/Earnings multiple of around 9.2x. With good reasons to believe that things will get better next year, that’s starting to look interesting.
Against a backdrop of full-year retail sales being down 4.7% and like-for-like sales down 2% vs. price inflation of 2.1% (i.e. volumes were slightly negative), the silver lining is that the second half was better than the first half. This is the momentum that needs to continue into the new year, along with improvements to gross margin after Italtile suffered a 260 basis points gross margin contraction in this financial year.
Another element of Italtile that is important to remember is that the group has manufacturing operations that are severely impacted by poor volumes due to the inherent fixed costs. If things improve, Italtile should get a strong upswing in that part of the business.
Merafe doesn’t have a rosy outlook for the year (JSE: MRF)
It’s a pity that a weak first half isn’t expected to get better in the second half
For the first half of the year, Merafe experienced a 17% decrease in ferrochrome production. Thanks to better chrome ore prices, revenue was only down by 0.4%. Sadly, cost pressures ensured that HEPS was far worse than that, down 33% to 28.2 cents.
Interestingly, perhaps because of the headroom in the payout ratio, the interim dividend held steady at 20 cents per share. The maintenance of the dividend at this level is made even more interesting by the expectation of a weaker second half, with downward pressure on chrome ore prices and thus the likelihood of margins being squeezed.
Montauk’s interims look good, but watch out for Q2 (JSE: MKR)
The good stuff happened in Q1
Montauk has released its numbers for the second quarter and thus the six months ended June. Over six months, it looks great. Revenue is up 13%, EBITDA increased 57% and HEPS jumped from a loss to a profit. What’s not to love?
It’s not quite so simple when you consider the second quarter (Q2) though, where revenue fell, expenses were higher and the company made a net loss rather than a net profit.
This group is headquartered in the US and focuses on Renewable Natural Gas (RNG) and Renewable Electricity. They put very little effort into their SENS announcements, so you’ll have to work through the detailed US filings if you want to know what’s going on there.
Renergen finally gives investors the news they’ve been waiting for (JSE: REN)
The stock rallied 28.5% before the market calmed down a bit
For those with the patience to believe in Renergen, there’s finally been some reward. I think it’s important to put this rally in context, as the share price has taken immense strain in the past year:
In fact, if you really want to see how frothy Renergen got before the market got cold feet and started to run away, here’s a five-year chart:
When you invest in exploratory companies, you need to be ready for immense volatility along the way. Most of all, if you buy when there is clear hype around the stock, you’re taking the most risk possible.
After a long delay in getting helium production online, the company has now announced that the OEM has handed over the keys to a fully operational liquid helium production plant. They’ve been producing helium since 19th July and the first customer Iso-container is scheduled to arrive later this month for filling.
Now the hard work really begins, as the market will start to look at the financial performance of the plant. Don’t forget that there’s still a long journey ahead until this can be considered a moderate risk investment. They need to raise capital, develop the project and get to maximum production.
A substantial drop in profits at Sasol (JSE: SOL)
It feels like they are taking every impairment possible in this period
After releasing the annual production and sales report towards the end of July, Sasol has now released a trading statement dealing with the year ended June. The numbers were never going to be good based on what we’ve seen from the company in the past year. Adjusted EBITDA has declined by between 2% and 17%, driving a decrease in core HEPS of between 9% and 27% for the period.
The core HEPS number benefits from various adjustments that go beyond the traditional HEPS calculation. Without those adjustments, HEPS is down by between 59% and 77% – a much nastier result.
The basic loss per share is where you’ll find the result of throwing the kitchen sink at this period, as Sasol has recognised enormous impairments that led to a basic loss per share of between R68.82 and R71.48 for the period. This type of approach isn’t unusual when new leadership is in place, as they like to create the worst possible base off which to tell an excellent story of improvement. Either way, they have impaired the Chemicals business by a whopping R45.5 billion in America and R3.9 billion in South Africa. The Secunda liquid fuels refinery business was impaired by R5.7 billion and is fully impaired as at the end of June. These numbers are all net of tax. They’ve also derecognised a deferred tax asset of R15.3 billion related to Chemicals America.
Detailed results are due for release on 20 August. Have we finally reached the bottom for Sasol?
Super Group takes a major knock to earnings (JSE: SPG)
The market didn’t enjoy this update
Super Group released a trading statement for the year ended June 2024 and it makes for unpleasant reading. Revenue might have increased by up to 10%, but that hasn’t translated into a good news story at operating profit level. It only gets worse when you reach HEPS.
Operating profit before capital items will be lower by up to 10% vs. the comparable year. HEPS will be down by between 20% and 30%. As for earnings per share, which is impacted by impairments, the group is now loss-making.
To understand these numbers, we need to look deeper into the operations. Super Group has a variety of business units that operate independently, so the group result ends up being driven by the mix effect further down.
In Supply Chain Africa, they are negatively impacted by the significant decrease in coal export volumes and the general state of things at South African ports, which are now losing volumes to competing ports like Dar es Salaam and Walvis Bay. The market doesn’t care about South Africa’s sob stories on infrastructure issues. If we don’t get it right, our economy will continue to suffer. Super Group is exposed to coal miners that are financially distressed, like Wescoal Mining. It’s a really unfortunate situation.
In Supply Chain Europe, the business was hit by a decline in automotive parts distribution volumes and lower gross margins due to excess vehicle capacity in German. Combined with higher interest rates, this was a tough period for the business. inTime Germany has been impaired and is being “right-sized” for the economic conditions.
In Dealerships UK, Ford has lost market share and has made decisions that have impacted sales performance. This is why I far prefer a model like WeBuyCars (JSE: WBC) that isn’t beholden to the whims of a global manufacturer. When you own Ford dealers, you have minimal control over your own future. Combined with margin erosion in used vehicle sales and higher net finance costs, this was a period to forget.
There aren’t exactly any silver linings here, are there? The detailed results will be released on 11th September.
Little Bites:
Director dealings:
The selling by Richemont (JSE: CFR) directors continues, with two directors selling shares worth a total of R78 million. With everything going on in China, I wouldn’t ignore this.
A senior manager of Investec (JSE: INL | JSE: INP) sold shares worth R15.2 million.
An associate of a director of Acsion Limited (JSE: ACS) bought shares worth R660k.
For the third time in the past few weeks, a director of Zeda (JSE: ZZD) has sold shares in the company. This time, the sale was worth R310k.
Acting through Protea Asset Management, Sean Riskowitz bought shares in Finbond (JSE: FGL) worth R284k.
Southern Palladium (JSE: SDL) has submitted the Environmental Impact Assessment report to the Department of Mineral Resource and Energy (DMRE) for the 70%-owned Bengwenyama PGM Project. This is an important milestone for the project. The DMRE acknowledged the submission, which means they will move forward with a detailed review of it.
Following the retirement of David Nurek as chairman of Clicks (JSE: CLS), the company has announced that JJ Njeke has been appointed as the new chairman. He has been the lead independent director since 2022.
Self-directed or do-it-yourself investing and trading are on the rise globally. Tinus Rautenbach, head of Investec’s new online trading platform Clarity, shares essential insights for individual investors looking to take control of their investment and trading portfolio.
In 2018, a framed painting of the ubiquitous Banksy piece “Girl With Balloon” was sold for £860,000 at a Sotheby’s auction. Practically as soon as the gavel hit the sound block, confirming the sale, the painting started lowering itself through a hidden shredding device installed in the bottom of its frame. As shocked onlookers gasped in surprise, the entire bottom half of the work was shredded before its automatic mechanism came to a halt.
You can view the moment, directed by Banksy himself, here:
The art world was shocked, yes, but not necessarily surprised. The anonymous artist known only as Banksy frequently makes work that comments on and criticises the capitalist consumerist society that auction houses like Sotheby’s fit into seamlessly. In hindsight, a move like this makes so much sense that it almost should have been predicted.
As stated by Sotheby’s after the fact, the shredded version of the painting was “the first work in history ever created during a live auction” – and the auction house asserts that they had no idea that it would happen. Besides specific instructions not to remove the artwork from its frame, no other clue had been given that would have led them to suspect the self-destructive nature of the work.
As for the new owner of the painting – well, she was only too happy to agree to keep the shredded work, renamed “Love is in the Bin” by Banksy on social media. And with good reason too, because the next time “Love is in the Bin” went on auction in October 2021, it fetched the incredible sale price of £18,582,000, much more than its estimated value of £4m-£6m.
Paintings that become more valuable because they’ve been deliberately damaged, artworks that lose all value overnight when they are revealed to be forgeries, and forgeries that become more valuable than their originals – these all seem like giant warning signs to investors looking to make money in the art world. Yet in 2020, the Artprice Global Indices put in a stronger performance than pre-pandemic, with the Contemporary Art price index showing a formidable 48% increase.
Which begs the question: is there money to be made from investing in art – or do the risks outweigh the benefits?
Indices: helpful and otherwise
The purpose of any index is to illustrate how prices have changed over time. In the art market, for an index to be meaningful, it needs to be applied to a group of works that share common characteristics. This could be based on a specific art form like sculpture, a movement such as impressionism, or the works of a particular artist, allowing us to track the evolution of their prices.
There are various methods for creating art market indices, with the “repeat-sales method” being one of the most reliable. This approach involves identifying artworks that have been sold at least twice at auction within a certain period. By comparing the prices from these sales, it becomes clear how specific works’ values have changed. After gathering enough data points, we can then chart a curve that reflects these changes over time.
Another approach, developed by academic researchers, is the “hedonic method”. This method analyses the impact of various factors like size, technique, year of creation, and theme on the price of each artwork, helping to estimate the influence of time on its value. As an artist, I feel like I am well-positioned to weigh in here with the opinion that this method sounds about as effective as throwing darts while blindfolded. But again, that’s just one opinion.
Art indices can be useful, but they come with some caveats. Perhaps the biggest one is that they typically rely on auction data, which only covers part of the market and often leaves out private sales through galleries and dealers. That’s effectively 53% of the global art market excluded. It therefore stands to reason that indices can sometimes give a skewed picture, focusing more on big-name artists and high-value pieces, which doesn’t necessarily reflect the broader art market.
Different indices like the Artprice Global Index, Artnet Contemporary C50, and Mei Moses World All Art Index have their own methods. For instance, the Artnet C50 highlights the top contemporary artists, much like the S&P500 does for stocks. Meanwhile, the Mei Moses Index tracks how the same piece of art performs over multiple sales, offering a unique view on how an artwork’s value changes over time.
So while these indices can offer some insights, it’s best to remember that they provide a snapshot of certain segments of the market but don’t tell the whole story.
It’s not what you own, but who
In most publicly-listed businesses, the whims, ideals and interests of the founder do not have a direct impact on the share price. There are notable exceptions to this convention – the likes of Zuckerberg and Musk come to mind immediately – and it’s certainly no coincidence that the stocks that are intrinsically linked to a strong founder personality are amongst the most volatile on the market.
One way to think about investing in art is to imagine that every artist is a Zuckerberg or a Musk. They are so intrinsically linked to their own work that a shift in their style, an interest in a new medium or a period of residency can directly affect the value, not only of that which they could still make, but of that which has already been made. If you wouldn’t invest in Meta or Tesla due to the volatile-founder-factor, then it makes no sense at all to try to invest in art.
Should you decide to go ahead and test your resilience, there are four main groups of artists to consider when weighing up investment options:
Emerging artists: these are artists who are just starting to gain recognition. Indicators include high-quality work, winning some awards or residencies, and having their pieces sold in the primary market. Think of these like a call option, with substantial potential upside as well as the potential to go to zero.
Established artists: artists in this category have been active for at least a decade and have a solid history of exhibitions and sales. They tend to be pricier because they’ve already built a reputation, making them a safer investment with a greater likelihood of appreciating over time.
Contemporary blue-chip: these artists are well-established and consistently in demand, commanding high prices. Their work is highly valued and backed by critics, academics, and the art community.
Modern masters: this group includes historical artists from the 19th and 20th centuries, whose significant contributions to art history make their work highly collectible. Since they are no longer producing new work, their pieces are rare and typically bought from reputable dealers to ensure authenticity.
The only dividend you can rely on
I’ve heard of people who have made marginal returns on expensive investments in art, practically all of which has gone back into the pockets of their art advisors. I’ve known people who have been trying to resell work at a high valuation for years with no success. And I know of more than a few unfortunate souls who will never make back what they lost on an art gamble.
Investing in art is a unique and exciting venture that goes beyond just making money. While the basic idea is to buy pieces that you think will appreciate in value, it’s not as simple as sitting back and watching your investment grow. If you wanted to do that, you could take your pick of less complicated stocks in the market. Art investment requires a good understanding of a very particular market, active engagement, and patience, as it often takes a long-term perspective to see significant returns.
The difference, of course, is that you can’t hang your Microsoft shares on your wall.
That’s exactly why an art investment shouldn’t be driven solely by financial gain. While getting good advice and making well-informed decisions can help protect against losses, there’s never a guarantee of profits. The trick is to remember that the value of art isn’t just monetary; it also carries cultural and personal significance. If you invest in pieces you truly love and feel passionate about, then you’re always getting a return, regardless of the financial outcome. This emotional connection makes the art world a rewarding space for collectors, blending passion with the potential for profit.
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.
Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:
Astoria has experienced a dip in NAV per share (JSE: ARA)
This is always the right metric to consider for an investment holding company
Between 31 December 2023 and 30 June 2024, investment holding company Astoria’s net asset value (NAV) per share declined by 3.5% in rand. With a diversified portfolio across several industries, the move in NAV is always a function of the underlying changes in investment values.
The largest investment is Outdoor Investment Holdings, comprising 47.9% of NAV. The valuation is up 7.3% based on higher profits and lower debt in the business. Next up is Trans Hex Marine at 18.4% and Trans Hex at 5.6% of NAV, where diamond prices seemed to buck the trend for the broader industry. Although production was below budgeted levels, diamond prices picked up the results and the valuations increased. The other uptick in value was at ISA Carstens, which is only 8.4% of NAV.
On the negative side, valuation declines were experienced at Goldrush, Leatt and VCG. Goldrush is separately listed as part of RACP (the name is changing) and is valued based on the listed share price. Leatt is valued on the same basis, with the share price having come under great pressure in an overstocked market for their products. VCG is a private company that is small in the broader context, contributing 5.2% of NAV.
Although the group NAV is higher, the dip on a per share basis is because of the purchase of additional Leatt shares during the period and the associated issuance of Astoria shares. The net asset value per share is R14.04 and Astoria is currently trading at R7.80, a discount to NAV per share of around 45%.
Exxaro Resources has experienced a major drop in earnings (JSE: EXX)
If you’re investing in resources, you have to be ready for volatility
In the mining sector, volatility is practically guaranteed. The price of commodities will fluctuate and then earnings will typically fluctuate by a higher percentage due to the operating leverage (fixed costs) in the mining groups. The volatility is even worse for mining groups focused on only one or two commodities rather than a basket of commodities.
So, painful as it is to see Exxaro’s HEPS for the six months to June decrease by between 31% and 45%, these are not unusual numbers in the industry. Coal and iron ore prices weren’t favourable and there were other issues, like logistical challenges and reduced offtake from Eskom.
Detailed results are due on 15 August.
Gold Fields isn’t shining right now (JSE: GFI)
The company hasn’t taken advantage of strong gold prices
Gold Fields released a trading statement for the six months to June that doesn’t tell a great story at all. Despite gold counters doing really well at the moment, the mining group will report a drop in HEPS of 25% to 33%. Sadly, production issues have ruined what should’ve been a strong result.
There are various reasons for this, ranging from rainfall at one of the mines through to a delayed ramp-up at Salares Norte. This caused gold volumes to drop by a nasty 20%, with the company hoping for improvement in the second half of the year.
This is a very hard lesson about gold: if you want to buy that theme, do not just go and stick your money in one gold mining group. There are way too many variables in mining.
Jubilee Metals has happy news about the Roan Project (JSE: JBL)
Operations have commenced at the newly constructed front-end upgrade project
Jubilee Metals must be feeling good about sharing the news that operations have commenced at the Roan front-end upgrade project in Zambia. This project increases the overall capacity of Roan to a maximum design of 13,000 tonnes of copper per annum.
They are also busy with the Sable refinery upgrade project, with the combined processing capacity targeted to reach 25,000 tonnes of copper per annum over the next 12 months.
Zambian copper is a huge opportunity for Jubilee, with the resources classified into three groups: previously processed material (e.g. tailings), previously mined material (e.g. stockpiled low grade material) and open-pit mining of near surface copper reef. Roan will focus on the previously processed and mined materials, while Sable is being built as a dedicated refiner for the processing of open pit operations such as Munkoyo.
Importantly, Roan and Sable are independent operations that are part of the broader strategy.
The Jubilee share price has been a wild ride:
Orion Minerals has been granted two prospecting rights (JSE: ORN)
This is part of the Okiep Copper Project
After a three-year process, Orion has been granted prospecting rights over the greater Flat Mines Area. This is an important milestone at the Okiep Copper Project, with the company able to access this prospective ground thanks to the recent acquisition of surface rights over some of the area covering these prospecting rights.
Junior mining is a complicated world that I have a limited understanding of, but this does sound like good news. For the geologists among you, the next step will be results from drilling activities at new targets that Orion can now gain access to.
Sappi’s latest numbers have been skewed by tax (JSE: SAP)
Strong growth in EBITDA hasn’t translated into any HEPS growth at all
Sappi is a cyclical business of note, so seeing substantial percentage movements is actually nothing new. For the latest quarter, sales were only up by 3% and yet EBITDA excluding special items was 42% higher. That sounds exciting, but HEPS appears to be flat for the period at 7 US cents for the quarter. That warrants a more careful read, especially since it wasn’t flat. Sappi just didn’t highlight that fact and instead used lazy rounding off of numbers.
Before we dive into that, it’s worth noting the nine-month results for context. Over the three quarters, revenue is down 10% and EBITDA excluding special items is down 13%. The group has made a loss of -8 US cents per share vs. a profit of 53 US cents per share in the comparable period.
Complicated, isn’t it?
To make sense of this, we need to go past the SENS announcement and into the financials themselves. I was expecting to see finance costs as the cause of the disconnect between EBITDA and HEPS, as that is usually the culprit. Instead, I found an odd taxation move:
The tax expense in the comparable quarter was just $2 million vs. $12 million in this quarter. Tax calculations are complicated things and it’s possible to see different effective tax rates, but that’s the main reason why operating profit growth of 46.4% only translated to 27.5% growth in profit for the period. This still doesn’t explain why HEPS is “flat”, which is why I highlighted the weighted average number of shares at the bottom of the income statement. This tells us that there are more shares in issue on a diluted basis (taking into account share options etc.) and this impacts HEPS. But it still doesn’t have the full answer.
For that, we must go hunting for the earnings per share note:
Not only does this reinforce the number of shares outstanding, but it shows us that the big jump in profit for the period has only translated into 10% growth in headline earnings. This is because headline earnings ignores things like profit on disposal of properties and other things. The market uses HEPS because these distortions come out.
Still, why is HEPS flat? If headline earnings increased 10% and there were only a few extra shares in the calculation, how can it be flat? The answer is that it’s only flat if you round off to the nearest cent. The comparable period is actually 6.7 cents and this period was 7.3 cents. I find it quite odd that Sappi didn’t highlight this in the SENS announcement, as it’s an important point.
Looking at the operations, the packaging and textile markets showed some improvement and the graphic papers market could only manage a gradual recovery. Volumes and prices tend to be volatile in these markets, making it really difficult to forecast what the performance might end up being at Sappi. It’s even difficult for them to form an accurate view, as there are just so many moving parts that include logistics costs as well.
Where there’s no debate is around the net debt number, which has improved vs. the preceding quarter by $26 million. It’s still 14% higher than it was a year ago, which means the net debt to EBITDA ratio has jumped from 1.2x to 2.0x. The inflow of cash from the disposal of the Lanaken Mill will help reduce this further.
As you can see from the share price chart, it’s been a choppy few years with no obvious indication that Sappi will reward investors with share price growth. This does exclude dividends of course, with Sappi currently trading on a trailing dividend yield of 5.85%.
Little Bites:
Director dealings:
The CEO of Prosus (JSE: PRX) bought shares in the company worth over R80 million in an “on market trade” – and although a deeper read identified some allocations of performance units as a separate thing, I engaged with the company and it appears that he did indeed buy these shares in a trade that was distinct from performance units. That’s a huge purchase of shares.
Aside from stock option sales, it looks like two executive directors of Richemont (JSE: CFR) sold shares worth around R65 million.
A director of Clicks (JSE: CLS) bought shares in the company worth R992k.
An associate of a director of a major subsidiary of PSG Financial Services (JSE: KST) bought shares in the company worth R594k.
The company secretary of Oceana (JSE: OCE) has sold shares worth R346k.
An associate of a director of Spear REIT (JSE: SEA) bought shares worth R21k.
South Ocean Holdings (JSE: SOH) is a R540 million market cap company that has nothing to do with fishing. Instead, they are mainly involved in the manufacturing and distribution of electrical cables and other industrial products. Revenue for the six months to June increased by 5.7%, yet HEPS was down 10%. The culprit was a significant jump in administrative expenses and finance costs.
Is Mantengu Mining (JSE: MTU) throwing good money after bad, or is there a smart tactic at play here? We will have to wait and see, with the company announcing the acquisition of the mining right from New Venture Mining Investment Holdings that was initially supposed to be acquired by Birca Copper as part of that deal. They’ve also entered into a sale and contractorship agreement that will entitle the Mantengu subsidiary to mine and process chrome ore in the interim period. The mining right is worth R7 million and the agreement is worth R10.3 million. It seems that they are basically going around the disastrous Birca entity to get their hands on the real assets in this deal, while working with lawyers to unscramble the Birca egg. Not easy.
Here’s an interesting one: Prosus (JSE: PRX) and Naspers (JSE: NPN) CFO Basil Sgourdos will retire from 30 November 2024. He’s been with the group for 29 years and has been CFO of Naspers since 2014. He was appointed a CFO of Prosus when it listed in 2019. No successor has been named as of yet. Combined with the recent change in CEO as well, it’s a big year for the group and its executive team.
Citing personal circumstances, Astral Foods (JSE: ARL) CEO Chris Schutte has indicated an intention to retire a year early. He has been in the top job at Astral for 16 years, surely one of the most stressful industries to be in. He will consult for a year to the group to assist the incoming CEO. The new CEO hasn’t been announced yet.
Trustco (JSE: TTO), never shy to take on a corporate structuring opportunity of some kind, has decided to upgrade its US ADR program from Level 1 to Level 3, which means the ADRs could be listed on the Nasdaq or New York Stock Exchange. This is the same company that told the world that it dislikes being listed because of all the regulations on the JSE.
I’m not close to the intricate details of the Tongaat Hulett (JSE: TON) business rescue plan, but be aware that shareholders did not approve the equity subscription that would’ve seen Vision Investments end up with 97.3% of total shares. As this was voted down, the plan will now be implemented on the basis of a sale of the company’s assets as a going concern to the Vision consortium.
Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:
Discovery creates a single global Vitality reporting structure (JSE: DSY)
The group has put a lot of effort into building Vitality offshore
Currently, Discovery is structured into three “business composites” – or segments, for the rest of us plebs who don’t spend our days dreaming up unnecessary terms. These are Discovery South Africa, Vitality UK and Vitality Global. The group has now decided to combine Vitality UK and Vitality Global into a single segment (ahem, composite) called Vitality.
Neville Koopowitz, who currently runs Vitality UK, will run Vitality. Barry Swartzberg was the CEO of Vitality Global and he will now work directly with Group CEO Adrian Gore to drive the group’s organic growth. In other words, he’s very important but there isn’t really a defined role for him, so Swartzberg will be the Chief Get Sh*t Done Officer when it comes to strategic projects. That can be a very important role in large corporates. I’ve seen it myself.
It seems like the main driver of this is to combine the IP, technology and data across the Vitality ecosystem into a coherent reporting structure. They are happy with the growth in the Vitality Shared-value Insurance Model and the idea is to now accelerate that story into global markets.
Glencore takes a bold stance on its coal assets (JSE: GLN)
Shareholder consultations seem to have shown a more sensible approach to ESG
You might recall that Anglo American once upon a time unbundled a company called Thungela. As coal prices increased, so too did the value of Thungela – especially since it was unbundled at a giveaway price. Although Anglo shareholders technically didn’t lose out unless they dumped the Thungela shares, some of Anglo’s troubles today would’ve been reduced by having such a cash cow in the group.
Also, it’s not like the world is somehow better off for that deal. All that happened is Anglo gave the dirty assets away. They weren’t shut down or made more environmentally friendly purely because of the deal. This is a very important point to understand.
Glencore is taking a different approach and I admire them for it. Rationality is finding its way into ESG.
Important context here is that Glencore released a Climate Action Transition Plan that deals with a responsible thermal coal decline strategy. This strategy would take place regardless of whether Glencore keeps all its assets in one group or splits itself in two, with “clean” metals on one side and “dirty” commodities on the other.
Keeping the assets together in one place means that the cash profits from the coal and carbon steel businesses can be used to invest in the transition metals. In other words, the exact opposite of Anglo’s strategy. Glencore also notes that shareholders were concerned about whether a valuation uplift from a demerger would happen. Naturally, Glencore has the benefit of hindsight here based on what happened with Anglo and Thungela.
I am pleased to see that some sanity is being applied to ESG considerations. People love to focus on the “E” and forget the “S” completely, usually because it’s easy to shout about the environment from the comfort of a warm home where you can afford energy. For the poorest of the poor impacted by energy costs, a responsible approach to coal management is vastly more useful than trying to shut it down overnight.
Separately, Glencore released its interim results. It’s quite ironic given the above update that lower thermal coal prices were a major drag in this period, leading to group adjusted EBITDA being down by 33%. Although funds from operations were 9% higher at $4 billion, this was assisted by the timing of tax payments.
By the time we got to the bottom of the income statement, we find the nasty outcome of a net loss to equity holders of $233 million, driven by $1 billion in impairments. This is a non-cash expense, but obviously talks to shareholder value going the wrong way.
At least net debt is down at $3.6 billion, a significant improvement from $4.9 billion at the end of 2023. The second half is going to see a major outflow for the Elk Valley Resources acquisition, with Glencore likely to be sitting close to the net debt cap of $10 billion. The cap is self-imposed and relates to the dividend strategy, with the company noting that there’s still a good chance of shareholder distributions above the base cash distribution in February 2025.
Impala Platinum’s earnings have collapsed (JSE: IMP)
The situation in the PGM market desperately needs to improve
Impala Platinum has released a production update and trading update for the year ended June. Let’s get the earnings out the way: with a drop in the dollar price per 6E ounce of 34% (only slightly offset by a weaker rand), it was never going to be a happy story. It still comes as quite a shock to see HEPS down by between 86% and 90% though. At these PGM prices, the business isn’t lucrative. At least there’s still a profit, I guess.
Where there is a loss – and a large one at that – is in basic earnings per share. This number is impacted by impairments and there were many of them, adding up to R19.8 billion in total. For reference, headline earnings will be between R1.9 billion and R2.8 billion for the period. The impairments are huge and reflect the state of play in the PGM market.
These tough scenes are despite an increase in production of 2% from managed operations on a like-for-like basis. Group production (i.e. from all operations) declined by 1% on a like-for-like basis. If you include Royal Bafokeng in the numbers, then total production was up 13%. Sadly, more production into an environment of plummeting prices doesn’t solve the problem, although it’s certainly better than a drop in production and prices.
The company really can’t catch a break at the moment, with improved electricity supply in South Africa on one hand and a deterioration in supply in Zimbabwe on the other.
The other problem is that mines cannot simply cut capital expenditure when times are tough. Impala Platinum actually accelerated its capex, up to R14 billion from R11.5 billion in the comparative period. That is a very large number compared to headline earnings in this period of R1.9 – R2.8 billion. That capex number wouldn’t have looked so bad compared to the R19.8 billion in headline earnings in the comparative period.
Profit margins have gone the wrong way at the JSE (JSE: JSE)
It’s always a fun moment for market newbies to learn that the JSE is listed on the JSE
The JSE is a company that owns, among other things, the JSE. It is therefore listed on its own product. Fun, right?
Less fun is the fact that revenue only grew by 4.3% for the six months to June, with expenses up by 6.4%. You don’t need to get the calculator out to know that margin has therefore contracted, in this case by 200 basis points in the case of EBITDA. At a 42% margin, it’s still a very profitable business.
Due to various other moves on the income statement, HEPS was only down by 0.2%. That’s not bad in the context of a 12% drop in equity trading activity, a situation that I am certainly hoping will improve with elections behind us and hopefully lower interest rates in the not-too-distant future. The JSE has highlighted an improvement in trade in Q2 and in July, which is certainly encouraging for us all.
The JSE had a cash position of R1.8 billion as at the end of June and bond investments of R485 million. They are required by regulators to maintain substantial levels of capital, with ring-fenced and non-distributable cash and bonds worth R1.34 billion.
MTN is now heavily loss-making (JSE: MTN)
If you paid attention to the MTN Nigeria results, this won’t come as a shock
MTN has released a trading statement for the six months to June and I’m afraid that it tells a sad and sorry story. Despite a resilient performance in South Africa and good stuff in Ghana and Uganda, the results from Nigeria severely impacted the group result. MTN really does love playing life on hard mode, as they even have an investment in Sudan that is being impacted by ongoing conflict.
For the six months, HEPS has swung into the red in a big way, coming in at between -271 cents and -217 cents. This compares to positive HEPS of 542 cents for the first half of the previous financial year. Remember, HEPS doesn’t even take into account various issues like impairments, although it also doesn’t consider the gain on disposal of a subsidiary. What it does include is massive foreign exchange losses of -519 cents per share, of which Nigeria alone is -389 cents.
If there’s any good news in this update, it’s that the negotiations between MTN Nigeria and IHS Nigeria have been successful in terms of reducing the US dollar-indexed component of the leases. They are now linked to the Nigerian naira and escalations are capped by a calculation based on Nigerian inflation. Technology-based pricing has also been removed. I’m sure it will help a bit with the situation in MTN Nigeria, but won’t solve the problems by itself.
And in other news that certainly won’t move the dial, MTN is selling the business in Guinea-Bissau. I really don’t understand why they even own something like that in the first place. MTN needs to focus.
Quilter signs off on an excellent six months (JSE: QLT)
Record adjusted profit – now that’s a win
In my opinion, Quilter is one of the best rand hedges on the JSE. It’s just a really good company following a consistent strategy in an appealing market. The benefits are clear to see in the interim period, with adjusted profit up by 28% and coming in at record levels.
Assets Under Management and Administration (AuMA) is the lifeblood of this business. Quilter is focused on distribution as well as asset management, which means that net inflows have a much better chance of success than in traditional models that don’t have distribution. A similar example in South Africa is PSG Financial Services, another company that I like. At Quilter, AuMA is up 7% since December 2023. Aside from positive market movements of £5.6 billion, they also had net inflows of £1.5 billion. That’s much better than net inflows of £0.2 billion in the comparable period.
With operating margin improving by 500 basis points to 29%, Quilter is doing an excellent job of converting flows into profits. If you read carefully, you’ll see that revenue only increased by 5%, so much of this growth has come from cost discipline and efficiencies as the platform scales. They’ve now managed to achieve a drop in interim period costs for the third period in a row. This can’t carry on forever of course, but it’s great to see.
Diluted HEPS more than doubled from 0.4 pence to 0.9 pence per share, but Quilter focuses on adjusted diluted earnings per share which grew 21% to 5.2 pence. The interim dividend showed a more modest increase of 13.3% to 1.7 pence per share.
The share price is up by a fairly spectacular 73% in the past 12 months and 22% year-to-date. When a strategy works, the market celebrates!
Little Bites:
Director dealings:
A director of Raubex (JSE: RBX) has sold shares worth R8.5 million. This is distinct from other sales of shares by directors as a result of share-based payments vesting. It’s quite surprising to see this in the context of the GNU sentiment.
A prescribed officer of Zeda (JSE: ZZD) sold shares worth R194k. As a Zeda holder myself, this doesn’t fill me with happiness.
In one of the smaller trades you’ll see in this section, a director of Stefanutti Stocks (JSE: SSK) bought shares worth just R580. Perhaps he skipped dinner with the family over the weekend and put it into shares instead!
Things are going from bad to worse for Mantengu Mining’s (JSE: MTU) deal for Birca Copper and Metals. Earlier this week, we learnt that New Venture Mining Investment Holdings won’t sell the mining right to Birca, which was a prerequisite for the Mantengu deal to go ahead. That’s mild compared to the latest update, with various financial and contractual obligations coming to light that put the operations of Birca at further risk. In Mantengu’s opinion, these obligations weren’t disclosed by the sellers of Birca and this could be a breach of the agreement. Birca has now gone into business rescue and it seems like Mantengu has a legal fight on its hands to avoid a very, very expensive mistake here. Deals are risky things.
For the budding geologists among you, Copper 360 (JSE: CPR) has declared the maiden reserve at Rietberg Copper Mine and has filed the mining viability report. Basically, this is the plan that talks about infrastructure requirements and forecasted production capacity. The TL;DR for those of us who don’t having a mining degree is that the Rietberg Mines Reserves have increased by 50% vs. the previously declared Mining Resource. As their confidence in the resource improves, they expect this to increase further. You may recall the news earlier in the week that underground mining has commenced at the Rietberg Mine.
Altron (JSE: AEL) announced the sad news that Robbie Venture has passed away. Having been with the company since 1997, he certainly leaves behind a legacy.
Guess what? There’s ANOTHER Kibo Energy (JSE: KBO) announcement. My day just wouldn’t be complete without one. This time, they’ve shared an update from subsidiary Mast Energy Development that the Pyebridge flexible power generation asset achieved revenue of £57k in its first month. You know it’s a desperate situation when a company announces every single thing that could be possibly be interpreted as positive news.
Trematon Capital Investments will effectively dispose of a 60% portion of its shareholding in Genexperience (GenEx) to Dr Khamis Obaid Mubarak Al Ajmi, an investor with a portfolio of school operations in Qatar and Oman. The disposal will be effected by means of an issue of shares in GenEx for cash. Prior to the issue, Trematon holds an indirect 75.8% interest in the start-up edu-tech business. The issue will be made in six tranches over the next two years – each of a 10% stake for a consideration of US$500,000 per tranche. The share issue will provide GenEx with the resources required to grow the business within South Africa as well as expanding to the Middle East and UK.
The R3,25 billion disposal by Sasfin Bank and Sasfin Private Equity Investment (Sasfin) of the Capital Equipment Finance and Commercial Property Finance businesses, announced in October last year, has received final regulatory approval.
Following discussions with shareholders, Glencore has abandoned its plans to demerge its coal business citing encouragement from shareholders to keep the company’s cash-generating ability with the retention of the coal business seen as offering the lowest risk pathway to create value for shareholders.
Mantengu Mining’s planned acquisition of Birca Copper and Metals (BCM), announced earlier this year has faltered. In May, the company entered into an agreement with Birca Investments and SA Metals and Fossils to acquire BCM for c.R30 million. BCM mines and processes high grade chrome ore in the North West Province. The mining area is the subject of the mining right granted to New Venture Mining Investment Holdings (NVMHI). Prior to the deal, BCM and MVMHI had signed a transfer of mining right agreement. But this month NVMHI accused BCM of certain breaches and cancelled the transfer agreement with immediate effect thereby terminating the deal between Mantengu and BCM. Mantengu says given the materiality of the acquisition and subsequent investment made into BCM, the company will engage with NVMHI with the aim of finding an alternative solution to protect the investment. Subsequently, Mantengu has advised that it has been made aware of several other financial and contractional obligations which were not disclosed prior to the acquisition agreement, and which have placed the operation of BCM at further risk. Given material doubt on the ability of BCM to continue its operations, the BCM Board has placed the company into Business Rescue.
The support by Pick n Pay shareholders of management’s plan to turnaround the ailing retailer was clearly evident in the results of its Rights Offer, attracting R8,2 billion in subscriptions, double the initial R4 billion targeted. The offer, which was fully underwritten, consisted of an issue of 252,206,809 new shares at a subscription price of R15.86 per share. The subscription price represented a 32.48% discount and constituted c.33.8% of the company’ share capital. Proceeds will be used to recapitalise the company as will the net proceeds of the intended Boxer IPO.
The GPI Women’s BBBEE Empowerment Trust will purchase 8,310,834 Grand Parade Investments shares at R3.39 per share from the company’s wholly owned subsidiary GPI Management Services. The purchase price of these treasury shares is R28,17 million, will be funded by a capital contribution for the full amount by GPI Management Services.
Grindrod Shipping, 83% owned by Taylor Maritime Investments, is to delist from Nasdaq effective 26 August and from the JSE on 30 August 2024. The delisting follows regulatory approval of the company’s selective capital reduction, which will see a share buyback of 3,5 million shares at $14.25 per share from shareholders.
A number of companies announced the repurchase of shares:
In line with its share buyback programme announced in March, British American Tobacco this week repurchased a further 355,122 shares at an average price of £27.49 per share for an aggregate £9,76 million.
In terms of its US$5 million general share repurchase programme announced in March 2024, Tharisa has repurchased a further 9,783 ordinary shares on the JSE at an average price of R19.51 per share and 351,667 ordinary shares on the LSE at an average price of 83.59 pence. The shares were repurchased during the period 29 July – 2 August 2024.
Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 29 July – 2 August 2024, a further 3,738,623 Prosus shares were repurchased for an aggregate €119 million and a further 285,326 Naspers shares for a total consideration of R991 million.
Three companies issued profit warnings this week: Hulamin, Impala Platinum and MTN.
One company issued a cautionary notice this week: Trematon Capital Investments.
Unilateral mistakes in signing agreements when using unconventional methods.
The growth of the global economy has fostered an environment for cross-border transactions to thrive. However, in many instances where parties are concluding agreements in cross-border transactions, differences in location and time may give rise to the need for remote contract execution mechanisms to conclude the deal.
Over the years, with the advancement of technology, we have seen a deviation from conventional methods of concluding contracts to the use of electronic contracts, smart contracts, and the holding of written contracts in escrow, which may be used for written contracts where a party to the contract is not available to sign the contract on the closing date, but signs a signature page prior to the closing, which is then attached to the rest of the contract.
What happens when a pre-signed signature page is attached to an agreement that contains material terms that the signatory had not agreed to be bound to?
As a point of departure, a party’s signature is evidence that the party agrees to be bound by the terms of the contract, in line with the caveat subscriptor rule. However, what recourse can be sought where the pre-signed signature page is attached to a version of the contract that contains material terms that the party had not agreed to be bound to? This article explores the consequences of a party’s unilateral mistake, and the contract law principle of iustus error as confirmed by the Supreme Court of Appeal (“SCA”) in Ruth Eunice Sechoaro v Patience Kgwadi (2023).
The Sechoaro case
In this case, Kgwadi (Respondent) had married her since deceased ex-husband (Mr Kgwadi) in community of property in May 1987, and said marriage was dissolved in October 1991. As a result of the divorce, they concluded a settlement agreement which did not deal with the division of a property that formed part of their joint estate. In its judgment, the divorce court had granted Mr Kgwadi 14 days to apply to the court for variation of the settlement agreement. At the time of their divorce, the Respondent and Mr Kgwadi were joint owners of an immovable property in Boksburg (Property). Since the settlement agreement did not deal with the division of the property, they verbally agreed that each of them would be entitled to half of the value of the Property. It was verbally agreed that Mr Kgwadi would pay the Respondent 50% of the value of the Property upon its sale; however, Mr Kgwadi never did. In September 2010, Mr Kgwadi remarried Ruth Sechoaro (Sechoaro), to whom he bequeathed 50% of his estate.
In March 2012, the Respondent was severely injured in an accident and remained in hospital for six months. During her stay, a messenger from a law firm (whom the Respondent assumed to be representing Mr Kgwadi) presented her with a document entitled, ‘variation agreement’, the terms of which were that, inter alia, the parties now agreed to amend the settlement agreement relating to the Property, and that she forfeited her 50% share in the Property to Mr Kgwadi at no value (the Variation Agreement), which the Respondent signed.
Mr Kgwadi passed away in 2014, and an executor of his estate was appointed (the Executor). The Executor and the Respondent attempted to sell the Property; however, the Respondent was informed that she was not entitled to 50% of the proceeds of the sale of the Property due to the Variation Agreement. The Respondent launched an application in the High Court to challenge the enforceability of the Variation Agreement on, amongst others, the grounds that she signed the Variation Agreement without any intention to be bound by its terms. The High Court found in favour of the Respondent. Sechoaro subsequently applied to the High Court for leave to appeal, which was dismissed. She subsequently applied to the SCA for leave to appeal.
The SCA had to consider whether the Respondent’s unilateral mistake (error) in signing the Variation Agreement under a misunderstanding of its contents is reasonable (iustus) and excusable. The court, in its application of the iustus error principle, found this to be the case on the premise of the following:
• Based on the facts, it is common cause that the Respondent was reasonable in not expecting the agreement she had signed to contain a term that forfeited her 50% share in the Property at no value;
• Mr Kgwadi’s decision to present a Variation Agreement – which contained a clause that was materially different to what had been agreed with the Respondent – 20 years after the initial settlement agreement, was done deliberately to deceive the Respondent;
• Mr Kgwadi must reasonably have known, contrary to the clause in the Variation Agreement, that the Respondent would not have agreed to that agreement; thus, when he received the signed agreement, he was aware of her mistake and was the cause of it; and
• The Respondent acted consistently under her assumption that the Variation Agreement did not contain a clause that bound her to forfeit her 50% share in the Property at no value.
The doctrine of iustus error
As a principle, iustus error has been developed by our courts over time, and functions as a corrective measure that provides that a party will not be bound where they mistakenly gave their consent, where that mistake is reasonable and excusable. In Du Toit, the court held that where prior to the agreement, the mistaken party created an impression that directly contradicts the provisions of the agreement, the other party must draw the mistaken party’s attention to the discrepancy. Where a party continues to rely on the mistaken party’s discrepancy, this reliance is said to be unreasonable, and the error iustus.
Lessons learnt
Commercial agreements are commonplace in trade and will continue to exist for as long as trade does. To ensure that contracting is efficient, inexpensive and speedy during cross-border trade, entities must develop mechanisms that allow for agreements to be concluded by individuals while they are in different locations across the globe.
While the practice of escrowing pre-signed signature pages or entire agreements for release on the agreed closing date is becoming more common, contracting parties must ensure that the final agreement and its terms align with what the parties had negotiated to be bound to. Where a dispute arises, it may not suffice to say that by virtue of the mistaken party’s signing the agreement, they are bound to its terms, irrespective of their mistake. Failure to draw the mistaken party’s attention to their mistake, and further relying – unreasonably – on a mistaken party’s consent to be bound will make the error iustus, and the terms of that agreement will not be binding.
Doron Joffe is an Executive and Joint Head of Department and Asanda Lembede a Candidate Legal Practitioner in Corporate Commercial | ENS.
This article first appeared in DealMakers, SA’s quarterly M&A publication.
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