Ghost Bites (Gold Fields | OUTsurance | Putprop | York Timber)

Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:

Gold Fields gives an update on Salares Nortes (JSE: GFI)

There’s a delay in commencement of production and a decrease in near-term guidance

Gold Fields has announced that the Salares Nortes project commenced construction back in February 2021 and is now 97% complete. I’ve looked at enough classic car projects in my life to know that “97% complete” can mean that the last 3% really isn’t easy. That hopefully won’t be the case here, although there’s a two-month delay in commissioning the mills and filter presses. The original equipment manufacturer (OEM) needs to commission the plant for the warranties to be valid and that’s where the delay has come in.

Steady state production is only expected by 2025, so 2023 and 2024 production will vary based on the ramp-up. The previous guidance was 15,000 – 20,000 gold equivalent ounces for 2023 and and 500,000 gold equivalent ounces for 2024. It looks like 2023 will be 1,000 ounces at best and 2024 will be between 350,000 and 400,000 ounces.

The all-in cost is expected to average $700/oz for the first six years of the mine’s life (2024 – 2029) and $780/oz over the total life of mine, which is out to 2033.

The total project capital estimate has increased by $20 million to $1,040 million due to capitalisation of costs based on the later commencement date for first gold.

Long story short: building mines isn’t straightforward and delays aren’t uncommon.

OUTsurance is a rare SA success story in Australia (JSE: OUT)

When we build from scratch, we seem to have a chance

OUTsurance Group is making sure that shareholders get something out. The ordinary dividend has skyrocketed from 65.5 cents to 134.8 cents. The share price is up 22% this year, providing once more that it’s possible to do well on the local market if you pick the right stocks.

OUTsurance Group owns 89.9% in OUTsurance, 100% in RMI Investment Managers and a portfolio of venture capital investments. Including cash, the group has guided that the non-OUTsurance portfolio is worth between R2.7 billion and R3.1 billion.

Normalised earnings from continuing operations (excluding Hastings which was disposed of in the prior period), increased by a lovely 62.2%. A drop in head office costs from R134 million to R80 million was a major driver here. To get closer to the core operational performance, we can look at the 39.3% growth in the share of earnings from OUTsurance.

Youi in Australia is a major part of this, contributing R1.385 billion of R2.924 billion to OUTsurance’s earnings in this period, way up from a contribution of R413 million last year. Rand depreciation of 8% against the Aussie dollar is only part of the story here, with juicy growth in gross written premium income and an improved claims experience. The cost-to-income ratio dropped and investment income increased. If there was a bingo card for the drivers of insurance earnings, this result would be marking every box.

In OUTsurance’s South African short-term business, gross written premium growth was 8.8%. The claims performance wasn’t positive, with all the usual South African problems ranging from load shedding to crime and of course inflation in repair costs. The cost-to-income ratio increased from 25.3% to 26.1%. That’s still more efficient than the Australian business at 31.6%.

OUTsurance Life achieved gross written premium growth of 17.8% and the Funeral business achieved growth of 49.6% in the same metric. Face-to-face sales were discontinued in June 2023.

The growth story is far from over here. Aside from organic growth in existing markets based on product innovations and partnerships, the company is planning to enter the Republic of Ireland. Let’s hope our pending destruction of the Irish rugby team (fingers crossed) won’t scupper that plan.

Jokes aside, the other major move is the exercise of the option to acquire the remaining 50% of the Youi shares owned by a non-executive director of the group for A$42.5 million. Deloitte & Touche Financial Advisory has opined that the terms of the deal are fair to OUTsurance shareholders, as this is a small related party transaction.

Putprop still trades at a massive discount to NAV (JSE: PPR)

The market wants dividends and the yield is sorely lacking

Putprop has a market cap of less than R150 million. This is absolutely tiny and especially by property standards, with property funds needing to be much larger to justify being listed. With a net asset value of R16.12 and a share price of R3.48, one wonders for how much longer this company will be listed despite going to the effort of a rather pretty annual report with a Monopoly theme.

You’ll be taking a Chance if you build a position here, as getting out of it will be very difficult because of limited liquidity. Most property investors want dividend income and Putprop is light on that, with a total distribution of 11.25 cents per share for the year ended June 2023. The dividend yield of 3.2% makes it difficult to attract investors.

The loan-to-value (LTV) ratio has also spiked from 37.0% to 41.6%, so that’s another cause for concern for investors.

Either the market is wrong or the net asset value is wrong. You decide.

York Timber: higher wood prices didn’t help (JSE: YRK)

You read that correctly

I’ll genuinely never understand the appeal of York Timber. I’ve looked at it a few times before and the argument is always that the biological assets are valuable. Unfortunately, the company hasn’t done a great job historically of turning those trees into cash flows.

The latest update is a trading statement flagging a huge drop in HEPS of at least 90%.

Aside from inflationary pressures on costs that couldn’t be recovered in selling prices, the major issue was reduced harvesting from York’s own plantations that drove an increase in external log purchases. The prices for those logs increased despite a drop in lumber selling prices, so York seems to be getting squeezed in the middle.

The strategy to increase the clear-fell age of the plantations seems to be happening at the wrong time. The bigger question is whether there is ever a right time for York Timber, as there always seems to be something hurting the story. The share is trading at a new 52-week low:

Little Bites:

• Director dealings:
  • Acting through a trust, Terry Moolman has bought R515k worth of shares in Caxton & CTP Publishers and Printers (JSE: CAT).
  • Directors of Libstar (JSE: LBR) are buying the dip, with three directors buying shares worth a total of nearly R170k.

• In what is surely a surprise to absolutely nobody, Labat Africa (JSE: LAB) is late with the release of its financial statements. The JSE has fired a warning shot, with a deadline of 30 September.

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