Ghost Bites (DRDGOLD | Pan African Resources | Universal Partners)

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DRDGOLD can be very thankful for the gold price (JSE: DRD)

Without the increase, this period would’ve been a catastrophe

2023 wasn’t an easy year for DRDGOLD. The company had fallen behind on bringing new reclamation sites on stream to replace depleted sites. This was due to various external factors, ranging from delays on water usage licenses through to community interference. This forced the company to turn to legacy and clean-up sites to make 2023 a workable year – a situation made all the more frustrating by better gold prices that needed to be taken advantage of.

So, for the six months to December 2023, throughput fell 13% and production was down 7%, with better grades from the clean-up sites helping to mitigate some of the throughput pain.

Here’s an excellent summary of what life is like at mining dumps around Joburg:

Despite all this, DRDGOLD managed a 12% increase in revenue thanks to a 22% increase in the average rand gold price. Operating profit was up 15%, with operating margin expanding from 29.9% to 30.6%. A dividend of 20 cents per share has been declared.

The remainder of 2024 looks far more encouraging as all of the new sites are now up and running. There are also good reasons why costs should be better, including the completion of the solar power plant at Ergo that is scheduled for completion in March 2024.

Inflationary pressures cannot be ignored though, with cash operating cost guidance increased from R770,000/kg to R800,000/kg. This is a very tough way to make money, sadly, made all the more difficult by issues in Joburg.

The important numbers look good at Pan African Resources (JSE: PAN)

The group took advantage of the stronger gold price

The gold price doesn’t always do what we would like it to. In fact, it rarely behaves itself, seeming to move based on everything from inflation through to the gravitational pull of the moon. This means that when the price moves higher, gold mines absolutely must take advantage of this.

Pan African Resources did exactly that in the six months to December, with gold production up by 6.7% and an encouraging narrative around potentially upgrading guidance for the full year. Thanks to strong production and despite inflationary pressures, all-in sustaining costs (AISC) per ounce dipped slightly from $1,291/oz to $1,287/oz and full-year guidance has also been improved in this regard.

HEPS for the period was up 46.1%, which is obviously a strong result. Due to significant capex at the Mogale Tailings Retreatment project, net debt increased from $53.7 million to $64.3 million year-on-year. Steady state production is expected at the project by December 2024.

Universal Partners recognises a significant fair value loss (JSE: UPL)

The net asset value is down year-on-year as a result

Universal Partners holds a genuinely unique portfolio of assets, at least from a JSE perspective. They have everything from a dental roll-up business through to special toilets. No kidding.

Portman Dentex is actually a great example of a growing trend in the UK to combine fragmented services offerings into larger groups. This is now one of Europe’s largest dental care providers, fighting tooth decay across several countries. Following the merger of Portman and Dentex, Universal became a minority shareholder in the enlarged group. The business is performing ahead of budget, but higher borrowing costs have meant a shift in focus to operational efficiencies rather than lots of new acquisitions. Still, the business acquired three new practices during the quarter and how has over 400 practices in the group.

Another roll-up style play is Workwell, which doesn’t always work well. This is an accountancy and payroll business focused on contractors and freelancers as clients. That sounds like a lot of hard work to me – the exact opposite of lucrative B2B strategies. The business has struggled during a challenging labour market in the UK but is now in line with budget for the first quarter.

SC Lowy is a credit investing and lending group. The funds delivered a decent performance for the year, which is to be expected when yields are higher. The business in Italy, Solution Bank, achieved a record year.

Global recruitment business Xcede achieved the revised profit forecast for 2024. To help with working capital needs, Universal Partners subscribed for £1.5 worth of loan notes issued by Xcede.

We then arrive at Propelair, a toilet that uses just 1.5 litres of water per flush vs. 9 litres like a traditional toilet. Sounds good, but toilets turned out to be a rather kak business sadly. The company is way behind the original business plan and the investment is valued at a nominal amount.

The net asset value per share is £1.297, which equates to just over R31. The share price is R24. It is down from £1.429 a year ago, with fair value losses as a contributor to that.

Little Bites:

• Director dealings:
  • Hot on the heels of Brimstone deciding to sell shares in Equites (JSE: EQU), the COO has also sold shares in the company. The sale is worth R6.9 million. The director has a loan agreement with Investec that is secured by shares and value of the loan has now been reduced.
  • Naughty, naughty: an independent non-executive director of Reunert (JSE: RLO) bought shares in the company worth R151k without obtaining prior clearance.
  • At Capital Appreciation Limited (JSE: CTA), the chairman, CEO and CFO only sold enough of their vested share options to pay the tax, whereas the divisional directors cashed in on share options in full. This isn’t an unusual situation given the variance in earnings at group executive vs. divisional executive levels.

• Fortress Real Estate (JSE: FFA | JSE: FFB) announced that Moody’s has affirmed Fortress’ ratings and has upgraded the rating outlook from negative to stable.

• Deutsche Konsum (JSE: DKR) shares literally never trade on the JSE, so I include this note just to give a data point on how German property is performing. For the quarter, net rental income (i.e. after operating expenses) fell 2.0% and FFO declined by 21.1% because of funding costs. The net loan-to-value at the fund decreased slightly from 61.6% at the end of September to 60.7% at the end of December.

• In an announcement that you won’t see every day, an employee of the designated advisor of Visual International (JSE: VIS) bought shares worth R900. The designated advisor is the JSE listings requirements advisor for companies listed on the AltX.

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