ArcelorMittal’s longs business is still likely to close (JSE: ACL)
Despite the social cost, there just doesn’t seem to be an economic solution
It’s an ugly thing unfortunately, but sometimes businesses fail. When small towns rely on them, those towns fall on very hard times. As much as everyone would like to avoid these realities, they are a part of life.
The frustration when it comes to ArcelorMittal is that it feels like the longs business is mainly a casualty of years of bad government policies and execution in South Africa, with only some of the blame lying with disruption in the market and other economic factors.
For example, poor rail service is 100% a failing of government, with ArcelorMittal noting that Transnet’s performance has deteriorated to its lowest levels ever (that’s a very different tune to what the coal companies have been singing lately). Weak domestic demand in construction is thanks to years of disappointing economic growth and deterioration in most regions in South Africa, leading to low confidence levels among property investors and businesses willing to take on projects.
There are other factors mentioned by the company, like the Preferential Pricing System and export tax on ferrous scrap that favours scrap-based steel makers rather than integrated steel makers. I don’t know anywhere near enough about the industry to have a view on that, so I’m just telling you what the company mentioned here.
The list goes on. There are insufficient import protections and it seems to be too easy for local companies to dodge the tariffs that are in place. And speaking of tariffs, our electricity tariffs are described by ArcelorMittal as being “globally uncompetitive” – again, I can’t comment on the validity of that claim in terms of industrial electricity costs.
If these problems sound hard to solve, that’s because they are. Back in March, ArcelorMittal announced that they would wind-down the longs business. The IDC then stepped in with a R1.7 billion facility to try keep things going while they figure out what to do. All this capital has been devoured and there’s still no solution for the business.
ArcelorMittal simply cannot keep this business going, or the entire group will collapse. For the six months to June, they expect a headline loss per share of R0.89 to R0.99, which is practically no improvement from the headline loss per share of R1.00 in the comparable period.
Sure, there are some external macroeconomic factors here, like a substantial increase in exports from China due to weak domestic demand in that region. When the global market is being flooded and South Africa has a combination of weak domestic demand and poor protections for the current industry (the estimate is that imports are more than 35% of local steel consumption), there’s really only one outcome. The IDC putting a R1.7 billion plaster on such a gaping wound is just throwing good money after bad.
It’s very hard to see how they will avoid closing this business this year.
Mantengu Mining wants you to know that it isn’t just a mining company (JSE: MTU)
A planned change of name will drop the word “mining”
Mantengu is certainly one of the more colourful companies on the JSE. After getting themselves into trouble with the exchange, they’ve stopped making wild accusations about share price manipulation. They also decided to change their Designated Advisor recently without really explaining to the market why they did it. There’s never a dull moment at Mantengu and the market tends to keep its distance.
The latest update is a step in the right direction in my opinion, as they are feeding a narrative to the market about the underlying assets instead of all the other weird stuff that has recently been the focus. By changing their listed name from Mantengu Mining Limited to just Mantengu Limited, they are sending a message that they are more than just a mining company.
In addition to the mining assets in the group (Langpan / Meerust / Blue Ridge), they recently acquired silicon carbide manufacturing plant Sublime Technologies in what looked like a bargain that is almost too good to be true. They’ve also acquired the assets of Masorini Iron Beneficiation.
The current strategy includes a willingness to acquire non-mining opportunities in verticals like base load power generation. So, you can expect to see activity from the company in mining, mining services and energy.
You can probably also expect to see further weirdness, unless the winds of change really are blowing.
There’s trouble at South32 (JSE: S32)
Electricity supply for the Mozal Aluminium smelter is uncertain
When you hear the word “smelter” you need to imagine the most power-hungry industrial installation imaginable. I’m certainly no engineer, but I know that aluminium smelters use a wild amount of power, as I remember seeing references during the worst of load shedding to just how severe the usage was.
Historically, most of the electricity needed for South32’s Mozal Aluminium smelter has been generated in Mozambique by the Cahora Bassa hydro-electric generator. Now, renewable energy is great and all, but it relies on mother nature doing her part. Recent drought conditions in Mozambique have led to the operator of the generator highlighting a risk to supply.
There’s a plan B: Eskom. These days, that’s even a decent plan B! The deal is that Eskom supplies power to Mozal Aluminium when the hydro-electric project can’t meet requirements. The problem is that the deal is up for renewal and South32 is unable to get an affordable price tariff from the parties on the other side (the Mozambique government, the hydro-electric company and Eskom).
This creates material uncertainty around the ability for the smelter to operate at all beyond March 2026. This would be a disastrous outcome for all involved, so hopefully a better solution is reached at the negotiating table. But in the meantime, South32 has flagged the risk and that there will be a large related impairment in the FY25 results.
At this stage, they haven’t given guidance on the size of the potential impairment.
Supermarket Income REIT picks up a new property on an attractive yield (JSE: SRI)
This pricing is food for thought
The UK is a developed market that has structurally lower yields than South Africa. UK 10-year Gilts (their bonds) are currently yielding 4.6%. South African 10-year bonds are yielding 9.9%. That’s a difference of more than 500 basis points!
So, you expect to see properties in the UK vs. South Africa following suit, with a large difference between the net initial yields they are acquired on. The latest deal by Supermarket Income REIT suggests that either UK supermarket assets are too cheap, or South African retail assets are too expensive – or perhaps both.
Supermarket Income REIT is acquiring a Tesco supermarket in Ashford for £54.1 million on a net initial yield of 7%. Remember, the higher the yield, the cheaper the property. The lease still has nine years to run and has annual inflation-linked rent reviews, with a cap of 5% and a floor of 0%. Now, this may be single tenant risk, but it’s apparently a great site that Tesco has been in for years. The risks seem more than manageable, with 7% as a hard currency yield being a great price for the REIT. South African retail properties change hands for only a few of hundred basis points more (i.e. on yields of around 9% to 11% for quality properties), a gap that feels too small based on relative bond yields.
This is a redeployment of capital that the REIT unlocked through forming a strategic joint venture with Blue Owl Capital. The net cash consideration on that deal was around £200 million, so they still have plenty of capital to deploy. Hopefully they can find more deals at this price!
Tharisa has corrected an error in its production report (JSE: THA)
The numbers are better than reported, but mistakes like these shouldn’t be happening
The good news from Tharisa is that they understated their net cash position as at 30 June 2025 when they released their second quarter production report. The bad news is that this is a material line item on the financials, so there’s a decent chance that the incorrect number was part of decisions made by market participants.
Somehow, Tharisa didn’t include a cash balance that they have on deposit with a financial institution. The correct cash number is $164.9 million, not $150.9 million. The debt number is correct at $121.5 million.
This means that net cash is actually $43.1 million, not $29.4 million as reported. That’s a 47% difference in net cash! $13.7 million in net assets (the difference) is roughly R245 million, or 3.8% of the current market cap. This unfortunately isn’t an immaterial error.
Nibbles:
- Director dealings:
- Fabricio Bloisi casually bought around R410 million in Prosus (JSE: PRX) shares in an on-market trade. R410 million!
- An alternate non-executive director of WeBuyCars (JSE: WBC) sold shares worth a whopping R65 million to rebalance the portfolio. The stock has had a wild run, so this particular director sees this as a good opportunity to reduce exposure at a great price.
- A director of a subsidiary of RFG Holdings (JSE: RFG) sold shares worth R826k.
- The CEO of Vunani (JSE: VUN) bought shares worth R30k.
- Assura (JSE: AHR) shareholders still aren’t falling over themselves to accept the Primary Health Properties (JSE: PHP) offer. The good news is that Primary Health Properties received regulatory approval in Ireland for the deal, which is the final approval they needed. The bad news is that holders of only 1.18% of Assura shares have accepted the offer. The offer closes on 12 August. A lot needs to happen in the next month for this deal to be a success.
- Life Healthcare (JSE: LHC) confirmed that the proposed disposal of Life Molecular Imaging to Lantheus Holdings has now met all conditions precedent and will conclude on 21 July.
- There’s generally been good news at Accelerate Property Fund (JSE: APF) recently, as the company looks to fix its balance sheet and move forward with Fourways Mall as a more successful asset than before. The latest news isn’t positive though, with lead independent director Derick van der Merwe resigning with effect from 11 July 2025 due to “strategic differences” – whatever those might be. It may be nothing, or it may be something. Only time will tell.
- The meeting for the scheme of arrangement for the take-private of AH-Vest (JSE: AHL) has been convened for 11th August.
- African Dawn Capital (JSE: ADW) has been suspended from trading due to failure to publish financial statements within the prescribed time.
