Ghost Bites (AngloGold | DRDGOLD | Novus | Sibanye-Stillwater | Trematon)

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AngloGold’s production is on track this year (JSE: ANG)

Production guidance has been reaffirmed for the year

With the current strength in the gold price, all that investors are asking for is that gold mining houses do a presentable job of getting the stuff out of the ground. AngloGold Ashanti is off to a solid start for the year, with first quarter production in line with plans (up 2% year-on-year) and giving the group confidence to reaffirm full-year production guidance.

This is despite the flooding in Western Australia that has plagued many a mining group, AngloGold included.

The company is now headquartered in the US and the focus is on closing the value gap to North American peers. The group has operations in many countries around the world, ranging from riskier territories like Ghana, Guinea and Tanzania through to developed markets like Australia. They also have significant South American operations. Diversity is helpful for risk mitigation, but also introduces the likelihood of there being something going wrong somewhere in the portfolio, even if only weather related which is clearly outside of their control.

There are obviously many capital expenditure projects at any one time in a group this size. One of the more interesting recent strategic developments is the proposed joint venture with Gold Fields in Ghana, potentially creating Africa’s largest gold mine. Agreement with the Government of Ghana has not yet been reached.

Profits are higher at DRD, but could be even better (JSE: DRD)

Throughput improved throughout the quarter, so next quarter could be stronger

DRDGOLD has released an update for the three months to March. With production down by 3% vs. the immediately preceding quarter ended December 2023, the group wasn’t able to fully capitalise on the improved gold price. The average rand gold price was 5% higher than in the preceding quarter.

Thankfully, with fairly modest cost growth, the group was able to grow EBITDA by 12% despite the production challenges. Remember this is a quarter-on-quarter growth rate, not year-on-year.

The more important news is that two sites at Ergo Mining were finally commissioned in January 2024. This was critical, as legacy sites had been depleted by December 2023. This led to a slower January than the group would’ve hoped for, but things improved strongly by the end of March. This suggests that the next quarter could be a lot stronger, assuming nothing goes wrong. Even then, the delays in March suggest that the group might fall slightly short of production guidance for the interim period.

If the gold price can stay strong, it won’t matter so much.

Novus acquires a Stellies-based AI company (JSE: NVS)

The group hopes to implement the AI technology in its education business

It’s not every day in South Africa that you’ll see deals for startups, especially of the AI variety. This isn’t exactly Silicon Valley, although we do have some activity in the tech scene. The latest Novus deal is evidence that there are founders doing interesting things out there, with a deal to acquire the shares in AI startup Bytefuse held by Marblehead Investments.

It’s important to note right up front that Marblehead is 93.44% owned by Andre van de Veen, CEO of Novus. This is therefore a small related party transaction and an independent expert will need to provide a fairness opinion that assesses the valuation for the deal.

Bytefuse is an AI and machine learning startup based in Stellenbosch that was founded in 2021. Novus sees this as a way to secure AI technology for its education operations like Maskew Miller Learning. This is a typical strategic transaction where Novus is far more interested in the technology than the numbers it is currently generating, with a net asset value for Bytefuse of R7.3 million at the end of October 2023 and a loss for six months to October of R1.7 million.

The deal includes the ordinary shares in the company as well as the different types of preference shares that have been issued at different funding rounds in the company’s history to Marblehead.

It’s a very small transaction by any standard, with a value of only R10.8 million. This will be settled through the issuance of Novus shares at R4.30 per share, a 2% discount to the five-day VWAP.

In addition, Novus will subscribe for ordinary and preference shares to the value of R30 million, taking the Novus holding in Bytefuse to 48.58% of the ordinary shares, 78.93% of the investor preference shares and 50.43% of the founder preference shares.

Novus also has the option to subscribe for a further R20 million worth of shares that would take the holding to 58.87% of ordinary shares and 85.06% of investor preference shares.

In summary, van der Veen is essentially disposing of his interest in the company to Novus in exchange for more shares. Given the obvious conflict of interest that makes this a related party transaction, the market will pay close attention to the independent expert report and especially the way in which the AI technology is integrated with the education offerings.

Disappointing numbers from Sibanye-Stillwater (JSE: SSW)

EBITDA is trending firmly in the wrong direction

Sibanye-Stillwater has released an operating update for the quarter ended March. I’m afraid that it’s mostly bad news, so buckle up.

Let’s start with the silver lining, or perhaps the PGM lining. The US operations have shown a major improvement in EBITDA, coming in at $32 million for the quarter vs. a loss of $36 million in the three months to December. That’s also much higher than $14 million a year ago. In rands of course, it’s even stronger, with EBITDA of R609 million vs. R254 million a year ago.

See? I got your hopes up, only to dash them with a dose of reality. Way down in the announcement, you’ll find a paragraph noting that there was a once-off insurance receipt of $43 million in the US PGM business. Excluding this, there was a loss of $11 million. Sure, it’s better, but it’s still a loss.

In the US PGM recycling operations, EBITDA of $4 million is down from $11 million a year ago and $5 million in the preceding quarter.

This largely concludes the “good” news, with South African PGM operations reporting a sad EBITDA number of R1.46 billion, way down on R3.29 billion in the preceding quarter and in a different postal code to the March 2023 number of R6.95 billion. There have been safety incidents leading to lost production, as well as retrenchments in this business. Of course, the rand basket price dropping severely from R36,433 / 4Eoz a year ago to R24,004 / 4Eoz in this quarter doesn’t help.

If you’re hoping for a solid jump in local gold EBITDA to help offset this issue, you’ll be disappointed. The jump in the gold price was offset by decreased production due to cessation of production at Kloof 4. All-in sustaining cost (AISC) increased to such an extent that EBITDA only came in at R652 million, down from R774 million a year ago and R804 million in the preceding quarter.

Elsewhere in the group, Nickel EBITDA was a loss of R197 million, which is at least an improvement on the loss of R245 million a year ago and R405 million in the preceding quarter. The Australian zinc operations round out a pretty ugly quarter, with a loss of R262 million vs. a loss of R69 million a year ago (and a profit of R164 million in the preceding quarter).

With numbers like these, there’s zero evidence that Sibanye will reverse the slide in the share price over the past few years.

Trematon’s earnings have dropped, but read carefully (JSE: TMT)

NAV is up, provided you adjust for the special distribution

Trematon is an investment holding company that has a diverse portfolio of investments including Generation Education and Club Mykonos, among others.

In a trading statement dealing with the six months to February 2024, the company has noted a drop in HEPS of between 66.1% and 68.8%. You have to be careful though, as a better metric for an investment holding company like this is intrinsic net asset value (INAV). This is down between 2.6% and 3.8%, but there’s yet another nuance to this.

The company paid a capital distribution of 32 cents per share to shareholders in December 2023, so it’s better to adjust for that when assessing the percentage move. The comparable period was an INAV of 421 cents and the current period will be between 405 cents and 410 cents. If we add 32 cents to the current guided range to allow for the dividend, then INAV would’ve been up by between 3.8% and 5.0%.

Detailed results are expected on 17 May, at which point investors can dig into the portfolio properly.

Little Bites:

• Redefine (JSE: RDF) announced that Horse Group, a joint venture, has agreed to sell undeveloped bulk and excess parking in Poland for just under R500 million. This might end up being higher if a development with a larger residential usable area is approved. This is too small to be a categorisable transaction, so that’s as many details as we get on this deal. With the cautious approach that Redefine has taken to its payout ratio, freeing up capital sounds like a good thing – albeit far away and in a joint venture.

• Powerfleet (JSE: PWR), the group which merged with MiX Telematics, has changed its year end from December to March to align closely with the date on which the merger became effective (2nd April). For those tracking the reporting calendar, numbers for January to March will be filed by 22nd July. At this stage, guidance of revenue of $285 million and adjusted EBITDA of $40 million has been maintained for the year ended March 2024. If you want to really dig into this company, the 10-K report (as the group is listed on the Nasdaq) for the year ended December is available here.

• Montauk Renewables (JSE: MKR) released its 10-Q quarterly report, as this is another good example of a Nasdaq and JSE dual-listed group. Sadly, they put basically zero effort into explaining the numbers in their SENS announcements, purely providing a link to the report instead. This is a pity, as they’ve swung from a loss after tax of $3.8 million to profit after tax of $1.9 million. If you want to take a detailed look, you’ll find the quarterly report at this link.

• EOH (JSE: EOH) has a rather…colourful history. You can now add the weirdest cautionary announcement I’ve ever seen to that track record, with a very odd release on SENS noting that “certain shareholders” have approached the board “regarding the succession plan” and that the board is engaging with shareholders. On the same day, the company announced the resignation of one of the independent non-executive directors, but there’s no indication if this is related or not. I genuinely cannot find any reasons to own shares in this thing, as the most exciting things seem to happen in the boardroom rather than the underlying businesses.

• After the previous CEO of Bytes Technology (JSE: BYI) left under a dark cloud rather than a cloud of the tech variety, Sam Mudd was appointed as interim CEO. This has now been made a permanent appointment. The investigation into ex-CEO Neil Murphy should be concluded before results are released. Personally, I hope that the relevant parties throw the book at him for the undisclosed trades that drove his resignation.

• Mantengu Mining (JSE: MTU) announced the appointment of Keabetswe Mogaladi as COO of the group, with focus on the Langpan chrome and PGM mine development as well as general operations in the group.

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