Four months into the pandemic we have a clearer picture of the social and economic impacts of the lockdown. From DearSA.

It’s a catastrophe. The lockdown could kill far more people than the virus. At end July 2020, SA had 8,000 deaths from just short of 500,000 confirmed cases, for a case fatality rate of 1.6%.  Far more people will die this year from tuberculosis and diabetes than coronavirus.

Yet more people will die from poverty-induced illnesses in the years to come. An April analysis by Pandemic Data Analysis (PANDA) estimated years of life lost to the pandemic to be 14 million, or 30X more than from the virus itself.

Bear in mind that around 450,000 people die in SA each year from all causes (446,554 in 2017 and 470,396 in 2016). Coronavirus is hardly going to move this needle, even slightly.

In late March 2020, the government’s official data modellers suggested 351,000 could die from Covid-19 in South Africa. PANDA was hastily formed to challenge this wild spreadsheet modelling. The team comprises actuaries, data analysts, economists and other specialists. PANDA challenged the government’s models, suggesting that it was more likely that 10,000-20,000 would die from the virus. Based on the current figures, PANDA is right on target as the virus infection curve maps a typical epidemic decline tail.

“What has happened in the last four months is the greatest social injustice in SA’s history since apartheid,” says PANDA co-founder Nick Hudson. “The lockdown is based on bad science, poor modelling and even worse judgment on the part of the government.”

The real effects will be felt in the years to come, and it won’t be from Covid. It will be from poverty and its associated effects.

It is not difficult to understand why: an estimated 6 million South Africans have suffered income contraction so far this year, and the figure will likely rise to 10 million by September. It is well known that poverty shortens lifespan. Economist Dawie Roodt estimated roughly 300,000 deaths would arise from lockdown-induced poverty, based on examples of rising death rates in countries such as Greece after the 2008 financial collapse. There is an undeniable link between economic decline and death rates.

Yet the headlines tell us that SA has the fifth-highest number of infections in the world. That’s grossly misleading, says Hudson, and an inevitable consequence of increased testing. A more instructive statistic is to look at deaths per million of population, in which case SA ranks number 36 in the world (and 22^nd in terms of absolute deaths).

With the benefit of four months’ worth of data from around the world, we now know that there was little difference between countries embracing a hard lockdown and those that didn’t. The outcomes were more or less the same. There is simply no sign of the dramatic suppression of the reproduction rate that modellers assumed. Yet government has abrogated its responsibilities to a team of data modellers and epidemiologists who seem to be top-heavy with error-prone alarmists.

Nassim Taleb, author of the Black Swan and Anti-Fragility, is dismissive of economists and advisors who suffer no harm when the advice they peddle turns out to be wrong. We are in such a time now. Advisors urging extended lockdowns, as if we are living through the Black Plague, will still draw their government-guaranteed salaries at the end of the month, dispensing their wisdom via Zoom. If they were wrong at the start of the lockdown, why should we trust them now?

When the data proves them wrong, they do what self-preservation demands: double down by warning of a second and third spike in infections, lasting perhaps years.

SA is not alone in heeding advice from sources that deserve far more scrutiny than they are getting. UK epidemiologist Neil Ferguson, who had Covid-19 himself, had to walk back his original outrageous projections of 500,000 UK Covid-19 deaths, when in fact the virus has claimed less than a tenth of this.

President Donald Trump’s coronavirus czar Dr Anthony Fauci co-wrote a paper in March this year arguing (correctly) that the virus affects predominantly the old and the very sick. He predicted the mortality from Covid would not be significantly out of line with a seasonal flu. “It was remarkable that he predicted this at such an early stage in the spread of the virus,” says Hudson. “But ever since then he has been lapping up every minute of fear-mongering that he can, He’s a panic porn artist.”

Initially, most of the country seemed supportive of President Cyril Ramaphosa’s lockdown in the face of a viral attack the likes of which none of us had ever experienced. Yet we hoped it was temporary and the rights we voluntarily suspended – such as the right to work, move around freely, drink wine, smoke cigarettes, gather with friends – would be returned intact within a matter of months.

Now we’re not so sure. History teaches us that rights surrendered are seldom returned unalloyed.

Cabinet ministers and their government advisors who call for an extended lockdown based on erroneous data must be held to account. Their decisions will cause an unprecedented economic contraction of between 9% and 13% this year, but the effects in terms of poverty and declining wellness will linger for years. Blaming this on the virus and not the lockdown is the height of dishonesty.

By the end of June 2020 it was already clear that the infection curve in the Western Cape had peaked and was in decline. The same is now happening in Gauteng.

The type of modelling used in SA and elsewhere in the world is based on a completely erroneous reading of the actual data. It’s not that they lacked sufficient data on which to model their predictions. The Diamond Princess cruise ship presented data analysts with laboratory-type conditions with which to track and monitor the virus. This was a cruise ship sailing around the Pacific with 7,000 passengers, a large percentage of them old. In total, there were 12 deaths, all of them aged over 65. That’s a mortality rate of 0.2% of the ship population (in an environment in which it was difficult for anyone on self-isolate).

That presents an accurate picture of Covid’s spread in a confined environment. Yet senior academics trying to draw attention to the bogus science behind the global lockdown have been shut out of polite media circles, among them Dr Michael Levitt (born in Pretoria) of Stanford University, and Professor John Ioannidis, also of Stanford. Youtube has censored many who have questioned World Health Organisation (WHO) orthodoxy. There are dozens more senior scientists forced to get their message out on fringe podcasts and non-censored platforms. This is the “spirit of the times” in which we live, says Hudson.

Back in 1960 US-Hungarian psychiatrist Professor Thomas Szasz wrote The Myth of Mental Illness, arguing that undesirable behaviour was being medicalised and reclassified as “illness” with no science to back it up. He coined the term the “therapeutic state”. He warned us 60 years ago that the state wants dominion over our bodies and our thoughts, and would force “treatments” on us for the greater social good.

It seemed a long shot back then. Now it seems all too imminent.

Under no circumstances should a lockdown be permitted, says Hudson. “If there is a virus on the loose, people must choose their own risk-mitigation strategies. If you are afraid of the virus, then self-isolate, but you cannot force others to do the same.

“There’s something terribly wrong when you deny ordinary people agency in their own lives and their own health. People should be able to choose to stay at home, but have no right to force you to stay home. We want herd immunity, because that is how all epidemics are conquered.”

It appears that the Western Cape is fast reaching that point in precisely the fashion projected by PANDA.

We need to demand our government acts on sound explanations and data. Because when this blows over and South Africans survey the wreckage, they will look for someone to blame.

The floodgates have opened for thousands of people whose foreign-registered vehicles have been impounded over the decades. From Moneyweb.

Joaquim Alves was arrested and locked up for a weekend in May 2019 when his Lesotho-registered vehicle, which was being driven by a friend, was seized by SA customs officials in the eastern Free State town of Ficksburg.

Alves has businesses on both sides of the Lesotho border, and the vehicle was used to travel to and fro across the border several times a week.

He argued in vain with South African Revenue Service (Sars) customs officials that they had misread the law in seizing his vehicle. He then “unlawfully” retrieved his vehicle from the Ficksburg municipal compound. Shortly thereafter, the police came and arrested him on charges of theft. Alves, who has high blood pressure, ended up in hospital.

The following Monday the local magistrate ordered that Alves be released and the matter was postponed to a later date. The charges of theft were then dropped and the magistrate ordered that the vehicle be returned to Alves’s possession. However, this did not happen. When Sars refused to return the vehicle, Alves took it and the SA Police Service to the high court in Bloemfontein and won his case. Sars hung on to the vehicle while appealing the case.

Moneyweb first reported on the story in March.

Read: Midnight Express at the Lesotho border

Last week Sars’s appeal was blown out of court and it was ordered to pay the legal costs.

Sars has yet to indicate whether it plans to lodge an appeal with the higher court, but Alves says he will be ready for it if and when it does.

The court ruling means Alves’s vehicle must be returned to his possession.

He has also lodged charges of fraud and contempt of court against the officials involved (for not releasing the vehicle when ordered to do so by the magistrate).

“What this means is that anyone with a vehicle registered in any Southern African Customs Union [Sacu] country is free to drive that vehicle in SA without hinderance,” says Mkhosi Radebe of MC Radebe Attorneys in Pretoria, which is representing Alves in this case. “My instructions are to take this, if necessary, to the Supreme Court of Appeal and the Constitutional Court to confirm what the Bloemfontein High Court has ruled.

“Sars is overstepping the law and has been doing this for decades.”

Up for the fight

The reason this is such a contentious issue is that South Africans need special permits to purchase cheap imported vehicles, mostly from Japan, yet the same rules do not apply to residents of other Sacu countries. This is why so many Lesotho and Botswana-registered vehicles are visible on SA roads. Yet owners of these vehicles have complained for years of seemingly arbitrary seizure of their vehicles by SA police and customs officials while driving in SA. Those days appear to be coming to an end.

When it happened to Joaquim Alves, they clearly picked on the wrong guy.

“Most people just meekly pay the penalties to get their impounded cars back again. In my case, I decided to take Sars and the police on in court to prove a point. And I am prepared to take it to the top court in the land,” says Alves.

This is a matter begging for a constitutional hearing, and it’s perhaps surprising that it hasn’t happened yet.

Section 88 of the Customs and Excise Act allows any officer, magistrate or member of the police to “detain any ship, vehicle, plant, material or goods at any place for the purpose of establishing whether that ship, vehicle, plant, material or goods are liable to forfeiture under this act”.

Radebe says this clause is so badly worded and open-ended that any South African driving their locally-purchased vehicle could be subject to the same treatment as Alves. “Any customs or police official has the right to seize your vehicle to see if it violates the Customs and Excise Act. This in our opinion violates the constitutional protections against arbitrary deprivation of property. This must be challenged.”

Fringe benefits

Tens of thousands of vehicles registered in Lesotho and Botswana are believed to have been impounded by Sars over the years and then released on payment of “penalties”. The court case Alves brought before the Bloemfontein High Court provides a possible explanation as to the enthusiasm for seizing vehicles. Radebe says Section 92 of the same act allows for the seizing officer to receive up to one third from the proceeds of any penalties or asset sales.

“Customs and police officers are making a fortune in personal commissions out of seized vehicles. That, too, must be challenged.”

Alves and Radebe have been gathering evidence from scores of other people in similar circumstances in preparation for a potential class action suit against Sars, likely run to a claim of several billion rands.

One case shown to Moneyweb details the case of a Lesotho-registered vehicle valued at R45 000 that was impounded by Sars and released on payment of penalties of R23 000 – nearly half the value of the car.

Roughly a third of that, nearly R8 000, would have gone to the officers who impounded the vehicle.

In another case, a South African-registered vehicle was impounded and released on the payment of penalties.

“These Sars and police officials are making a business out of seizing vehicles,” says Alves.

In Alves’s case, Sars argued that the seized vehicle was “imported” and could not be driven in SA without an import permit. If so, thousands of cheap imported vehicles driving around SA sporting number plates from Lesotho, Botswana, Namibia and eSwatini – all Sacu member nations – are prone to seizure in the same way.

Radebe says to classify these foreign-registered vehicles from Sacu countries as “imports” when driven on SA roads makes a mockery of the Sacu agreement.

“We have a common customs union and once goods are cleared through Durban and any excise paid, they can no longer be deemed ‘imports’. These goods can move freely through the entire customs union area.”

Another issue highlighted by the case is whether vehicle registration papers constitute proof of ownership.

In 2002 Alves purchased the vehicle in question, a second-hand Nissan Serena station wagon, but did not officially change ownership of the vehicle, a point raised by Sars in challenging his right to bring a case before court. His lawyers argued the fact that transfer of the vehicle to Alves’s name does not affect his title or ownership of the property.

Kelvin Dushnisky calls it a day after releasing a great set of results. From Moneyweb.

It was a mixed bag of news and results for mining companies this week, some good and some awful.

AngloGold CEO Kelvin Dushnisky announced that he is leaving after two years, handing over the reins for the time being to chief financial officer Christine Ramon until a permanent replacement is found.

No reason was given for the resignation, though it won’t be for lack of results.

It may have something to do with the request from the Public Investment Corporation (PIC) for details relating to a bonus of $800 000 awarded to Dushnisky by AngloGold for stepping across from Barrick Gold in 2018.

AngloGold reported that Dushnisky voluntarily repaid the $800 000 (R13.4 million) after earlier receiving an incentive bonus of $926 160 (R15.5 million) from Barrick. The PIC is one of the largest shareholders in AngloGold, with 11.4%, and in June raised its concerns over the bonus with the gold producer’s board.

Outgoing CEO Kelvin Dushnisky, who AngloGold says voluntarily repaid his R13.4m bonus. Image: Matthew Staver, Bloomberg

Another possible explanation that has been speculated is there may be no better time to lock in share options than over the last year or two and exit with some financial dignity.

Dushinsky certainly had some luck on his side, presiding over a five-fold increase in the share price in his two years at the helm and a three-fold increase in interim profits for the six months to June 2020. How much of this was due to a rampant gold price and how much to management is unclear.

The world’s number three gold producer – which sold its sole remaining SA gold assets to Harmony earlier this year – reported operating profit was of $621 million (R10.4 billion)

In a Sens announcement released last week AngloGold advised that headline earnings for the June 2020 period are expected to be between $392 million and $416 million (2019: $120 million), with headline earnings per share (Heps) of between US 94 cents and US 99 cents (2019: US 29 cents).

Pandemic pressure

Anchor Capital’s resource analyst Seleho Tsastsi says what is clear from the results now coming through is that sales volumes have been hurt by the Covid-19 lockdown, though precious metals producers have been inoculated to some extent by strong commodity prices. Amplats sales volumes were down 46%, and Kumba Iron Ore’s were down 13%.

“Anglo American took a hammering from the Covid shutdown, with a 67% drop in interim earnings,” says Tsastsi. “Diamond sales fell through the floor and coal revenue was also sharply down. The contribution from platinum, which accounts for 23% of operating profit, was hit both by the lockdown and the explosion of a converter plant in March, which should be back on line by the end of the year.

“So the news for precious metals producers has been good to excellent, while for the rest it’s a mixed bag.”

Some good news for SA

Kumba reported half-year revenue had declined 8.5% to R31.58 billion, with diluted EPS at R26.15 (2019: R31.15). Good news for the country and the Northern Cape was its approval of the R7 billion Kapstevel South project at its Kolomela mine, with major shareholder Anglo American also signing off on the deal.

Across the water, booming iron ore prices enabled Rio Tinto to announce a $2.5 billion return of cash to shareholders, cementing its position as one of the UK’s biggest dividend payers.

Angloplats reported a thumping 28% increase in net sales revenue to R54.8 billion for the half year to June, with EPS at R25.12 (2019: R27.79).

Tsatsi says Royal Bafokeng Platinum will record a strong interim financial rebound despite a hefty blow to its production in the first half of the year due to Covid.

A trading statement from Merafe Resources suggests attributable ferrochrome production from the Glencore Merafe Chrome Venture will decrease by 42% compared with the prior comparative period. The company expects its basic loss per share to be around 2.79c, compared with EPS of 6.6c and its headline loss per share to be 3.41c, compared with Heps of 6.6c in the same period of last year.

Chrome prices remain under pressure, while energy-related costs are eating away at margins.

Also reporting results this week was steel producer ArcelorMittal South Africa, which reported a whopping R12 billion drop in revenue for the half year to June (2019: R21.74 billion). The loss for the period was R2.3 billion (2019: loss of R644 million), while headline loss per share was 239 cents per share (2019: headline loss of 58 cents per share).

These are great times if you’re in gold or platinum. Apart from that, there’s little to celebrate in these times.

More than R1 billion. That’s the cost of various commissions of inquiry in recent years, most of them investigating corruption. From Accounting Weekly.

The granddaddy of them all is the Zondo Commission of Inquiry into state capture, which has been allocated an additional R130 million to complete its work by March 2021. This is on top of the roughly R700 million spent so far on the inquiry since its formation in early 2018.

Total cost of Zondo Commission: R830 million.

Number of corrupt officials in jail: 0.

To be fair, Zondo has not completed its work and arrests will surely follow. In June this year, Deputy Chief Justice Raymond Zondo asked the Hawks to account for the lack of progress made in recovering the R2.4 billion paid by Passenger Rail Agency of SA (Prasa) to Swifambo Rail easing for locomotives that could not be used because they were too tall for the rail tracks.

Zondo has summoned the Hawks to account for the lack of progress on this, and other, cases.

South Africans are rightly outraged at the regular outpouring of corrupt tales from Zondo and other commissions of inquiry, and the fact that few have been held to account.

Moneyweb reports there were eight arrests related to the looting at VBS Bank, and four executives from Tubular Construction and Eskom were arrested late last year in relation to claims of corruption around contracts awarded for the building of the Kusile Power Station.

That’s about it. A dozen arrests, but no convictions as yet. And a few people lost their jobs.

Is this a decent return on investment on the roughly R1 billion spent on commissions of inquiry over the last few years? Let’s take a look.

Why the cost of Zondo has escalated

We have only a rough idea how the Zondo Commission budget was spent, thanks to answers provided by the ruling party in September last year to questions posed by the DA. Some R244.5 million was spent in the year the commission weas set up (2018/19) and R111 million the following year. The big-ticket costs were legal fees (R53 million), investigative tools (R35 million), investigators (R86 million) and “other goods and services” (R95 million).

We don’t have more recent figures, which have obviously ballooned over the last financial year.

In July 2019, President Cyril Ramaphosa set up a special tribunal under the Special Investigations Unit (SIU) to recover an estimated R14.7 billion in looted funds.

Let’s take a look at some of the other commissions of inquiry and assess their overall benefit to the country.

Marikana Inquiry cost R153 million

2012 was a low point for the SA Police Services, when 34 mineworkers were shot and 78 wounded during a violent strike at Lonmin’s Marikana platinum mine in North West province. A Commission of Inquiry was set up in 2012 and sat through till 2015. It was chaired by retired Judge Ian Farlam, and in 2015 issued its findings, which included recommendations of a further inquiry into the fitness of senior police officials to hold office, and referred the killings and assaults to the Director of Public Prosecutions for further investigation.

The cost of the inquiry was R153 million. Police say they acted in self-defence, but issued no apology to the families of the slain miners. There has, however, been a noticeable change in police behaviour in handling violent protests as a result of the Marikana massacre.

Seriti Commission into arms deal cost R130 million

Open Secrets reports that the Seriti Commission in Inquiry into the arms deal, which ran for four years, cost taxpayers more than R130 million. It is reckoned that the arms deal cost South Africa R65 billion, and Judge Willie Seriti, who chaired the inquiry, was accused by more than 40 civil society organisations of conducting a whitewash of corrupt dealmaking by senior political figures in collaboration with international arms companies. Corruption Watch and Open Secrets accused Seriti of failing in his duty to act impartially, failing to hold accountable those accused of corruption and ignoring key evidence. In August 2019 the North Gauteng High Court set aside the findings of the Seriti Commission for its “manifest failure” to hold those responsible for the arms deal to account.

PIC Inquiry cost R54.5 million

The Commission of Inquiry into the PIC was set up in 2019 to investigate any impropriety surrounding investment decisions made by the Public Investment Corporation (PIC). The cost of the commission came to R54.5 million – small change compared to Zondo. The PIC manages more than R2 trillion in funds, predominantly on behalf of public sector workers.

The Commission found multiple irregularities relating to loans and share swaps made to the Sekunjalo Group, and recommended a forensic review of all process involved in transactions with Sekunjalo. Further irregularities were found in the PIC’s R1 billion investment in a Mozambican pal oil plant called S&S Refinery, and a R9.4 billion equity and loan funding transaction to Steinhoff International Holdings. A reading of the final report shows numerous violations of internal policies and irregular funding to business deals, some of them clearly “deals for pals.” The PIC was also heavily invested in the VBS Bank, which was found to have looted municipalities around the country.

As a result of the Inquiry into the PIC, there were some positive outcomes. Dan Matjila resigned as CEO of the PIC in November 2018 while fighting claims of impropriety which are now under an internal investigation. Executive head of listed investments, Fidelis Madavo, and assistant portfolio manager Victor Seanie, were fired over the last year. This followed an internal investigation into a R4.3 billion investment by the PIC into AYO Technology Solutions. Daily Maverick reports that in April 2018, PIC’s executive head of risk management, Paul Magula‚ was fired after being found guilty of poor performance, while executive head for legal counsel‚ governance and compliance, Ernest Nesane‚ resigned.

Nugent Commission of Inquiry cost R8.8 million

Retired Judge Robert Nugent chaired the Commission of Inquiry into tax administration and governance at the SA Revenue Service, at a total cost of R8.8 million. Nugent rounded on former tax commissioner Tom Moyane who had seized control of Sars and “dismantled the elements of governance one by one.”

The findings are scathing, and point to a pattern of governance failures and weakening revenue collection under his watch. President Ramaphosa fired Moyane in 2018 as a result of the Nugent findings.

A 2014 benchmarking exercise by the International Monetary Fund found that Sars was world class in 15 of 27 categories, and only one rung below good international practice in one of the remaining 12 categories. It was a place of higher calling for many skilled professionals eager to build a new democratic SA, says Nugent’s report.

But by March 2018 it was a shadow of the organisation lauded by the IMF. It reeked of intrigue, fear, suspicion and mistrust. Moyane installed CCTV cameras to surveille his staff, some of whom covered the lenses for fear of ending up in disciplinary hearing for a misdemeanor.

The modernisation programme that had been a decade in the making, replacing the largely paper-based system that preceded it with state-of-the-art computer systems, was summarily stopped when Moyane took over the helm, “with not so much as a word to the person who had been instrumental in creating it.” US-based consulting firm Bain & Co had a destructive hand in dismantling working installations without consulting staff. Bain subsequently repaid R217 million to Sars.

Mokgoro Board of Inquiry into National Prosecuting officials cost R3.6 million

The Mokgoro Board of Inquiry into the fitness of advocates Nomgcobo Jiba and Lawrence Mrwebi to occupy the top positions in the National Prosecuting Authority cost the country R3.6 million. Jiba was accused of being politically captured by former President Jacob Zuma.

The bottom line

Overall, we think this is a rather poor dividend on the more than R1 billion spent over recent years on various commissions of inquiry.

Slightly lower interim earnings offset by R700m in cost savings. From Moneyweb.

Kumba Iron Ore’s earnings were briefly impacted by the Covid-19 lockdown, but operations were back on track by June, allowing the company to declare an interim cash dividend of R19.60 for the half year to June.

This means Kumba is paying out 75% of headline earnings in dividends – something it can afford to do given available cash resources of R24.3 billion, including undrawn credit facilities.

While many companies are holding back on dividends to fatten cash reserves for the uncertain times ahead, Kumba had no such reservations. Yesterday it announced it would spend R7 billion on the Kapstevel South project at its Kolomela mine, which will sustain production at about 13Mt for the remaining life of mine. The first ore from the new Kapstevel pit will reach the market by 2024.

A project of this size will be good news for the Northern Cape, which has abundant minerals yet to be explored. Kumba is spending about R200 million a year on exploration.

Themba Mkhwanazi, CEO of Kumba, said: “The approval of this project, at a time when the global and South African economies face the challenges of Covid-19, underscores Kumba’s positive longer-term outlook for demand for its high-quality product. It also demonstrates our commitment to extend the lives of our mines and continue providing much-needed jobs and livelihoods in the Northern Cape region.”

Rolling with the punches

The Covid lockdown contributed to a 13% decline in total sales to 18.6Mt (H1 2019: 21.4Mt), partly due to lower domestic offtake by ArcelorMittal. Export sales were down 8% 18.3Mt due to logistical constraints and bad weather which disrupted ship loading at Saldanha port.

There were also issues with Transnet’s capacity on the Sishen-Saldanha railway, resulting in a drop in rail shipments of 18.4% to 18.2Mt from 22.3Mt for the same period in 2019.

Mkhwanazi says the company is working with Transnet, which operates the Sishen-Saldanha rail line, to improve efficiencies and optimise use of the rail network and port.

Kumba’s high quality iron ore and geographical location – though remote from the major markets – gives it wide flexibility to adapt to market conditions. It has increased levels of finished stock at Saldanha to allow it to double-load on ships as part of a logistics risk mitigation programme.

China accounted for 66% of export sales as against 49% a year ago, due to its relatively quick post-Covid economic recovery at a time when other countries were in decline. There was a slight decrease in volumes to other Asian markets, notably Japan, South Korea and Taiwan.

Chinese steel production grew 2.2% over the last year, and reached a record in June 2020. Kumba’s focus on quality product positions it well for the future. Fitch Solutions Country Risk and Industry Research forecasts higher iron ore prices into 2021, with slightly softer prices the following year.

Quality products such as produced by Kumba attracts a market premium and partially insulates it against price movements for coarser products.

Kumba appears to have emerged from the Covid-19 slump with some dignity.

The numbers

Though sales and earnings are slightly lower, they are by no means disastrous. The company implemented cash preservation measures to tide it through any market disruption. Total cash savings of R700 million, roughly half from cost optimisation and half from reduced operational activity due to the lockdown, were supplemented by deferring R1 billion in non-critical capex. This gives it a net cash pile of R15.7 billion

Here are some of the highlights:

• Total revenue decreased by 8% to R31.6 billion (H1 2019: R34.5 billion), mainly as a result of lower prices and sales volumes, partially offset by a weaker exchange rate.
• Ebitda of R17.4 billion reflects a decrease of 14% (vs H1 2019: R20.1 billion).
• Average realised iron ore export prices decreased by 14% to US$93/t (H1 2019: US$108/t).
• Sales volumes reduced by 13% to 18.6 Mt (H1 2019: 21.4 Mt) due to lower exports of 1.6 Mt and lower domestic sales of 1.1 Mt.
• Operating expenses, excluding mineral royalties, decreased to R15.1 billion (H1 2019: R15.3 billion), largely due to lower operational costs of R0.8 billion, offset by a R0.6 billion increase in logistics costs.
• Sishen’s unit cash costs decreased by 12% to R325/t (H1 2019: R370/t).
• Ebitda margin decreased to 55% (H1 2019: 58%).

There’s some good news here from a surprising quarter. From Moneyweb.

Never write off agriculture’s propensity to come to the rescue when it is most needed. While most of the SA economy shrivels, agriculture is booming – up 27.8% in the first quarter of 2020.

Contrast this with the 2% contraction in the overall economy in the first quarter this year, coming on top of declines of 1.4% and 0.8% in the two preceding quarters. Agriculture’s resilience made a 0.5% positive contribution to GDP in the first quarter of this year.

Agriculture is generally seen as a defensive sector, even in the time of Covid. “People may be willing to sacrifice less essential spending, but there will always be demand for food,” says Paul Makube, senior agricultural economist at FNB Agri-business.Read: SA farmers in focus

Mordor Intelligence forecasts growth of 4.5% a year in SA agriculture over the five years to 2025, fuelled by population growth which in turn will drive demand for maize and wheat.

Good weather conditions and steady prices have boosted crop prospects, allowing farmers to plant 7% more hectares under commercial grain and oilseed crops. The area planted to maize was up 13% to 2.61 million hectares over the last season, according to Makube.

This should translate into a stunning 15.5 million ton crop for this year, up 37.6% over 2019.

White maize futures prices

Source: Investing.com

Exports of maize in the first quarter exceeded half a million tons, an increase of 86% over the same period last year.

Agriculture typically accounts for 2.5% of GDP, but the percentage rises to around 10% if upstream and downstream sectors are counted.

The sector’s contribution should be appreciably higher this year in light of the decline in other sectors of the economy.

The number employed in the sector is 865,000, which is 3.3% higher over the same period last year, and 8% higher than in 2008.

Impact of the lockdown

The Covid-19 lockdown was not without is downside, though the impact was muted.

The shutdown of the hospitality sector meant traders were unable to sell fresh fruit to fast-foods and restaurants, and farmers had to waste short-life vegetables such as lettuce because demand from regular customers dried up. Diesel shortages due to the backlog at refineries immediately after the lockdown also impacted on some of the producer operations.

“However, the sector was overall minimally impacted as most could operate and export due to being declared an essential service,” says Makube.

Outlook for the rest of the year

Expected good rainfalls, bigger crops and a relatively weak exchange rate augur well for the rest of the year, according to research by FNB.

The soybeans crop is expected to reach 1.26 million tons which is 7.8% higher than last year, despite a 3% contraction in planted area. The sunflower estimate is 13% higher year-on-year at 765,960 tons as a result of better yields, though the planted area also decreased by 3%. The groundnuts harvest is likely to jump 169% year-on-year to 52,140 tons due to a whopping 87% increase in hectares planted.

FNB expects the already stellar performance from agriculture to continue for the rest of the year in light of the bullish harvest outlook for both the summer and winter grain and oilseed crops, as well as citrus.

Read: Government ends state of disaster despite persistent drought

“Weather conditions have since turned positive for the winter rainfall areas with good snow coverage and heavy rains in the Western Cape province,” according to FNB’s research.

“The result has not only been good moisture replenishment, but also the much-needed flows through the rivers to the region’s dams which saw dam levels lifting by 7.4 percentage points week-on-week and 11.4 percentage points year-on-year to 60.9% full during the week ended 20 July 2020 according to the data from the Department of Water and Sanitation. This is good news for the winter crops with wheat farmers optimistic about this year’s harvest.”

For the new crop season ahead, the recent forecasts indicate good chances of a La Niña weather pattern which has historically been associated with good rainfall for the southern African region.

Welcome to the world of machine investment. We look at two South African companies that offer fully computerised investment. Is this the future? From Brainstorm

For the better part of two decades, there’s been raucous debate in the investment community as to whether machines can beat humans at investing.

And machines are certainly making their case. High-frequency traders (HFTs) using algorithms that look for pre-determined trading signals now account for the bulk of market trades around the world. The holy grail for HFTs is to detect opportunities and execute trades at the speed of light, which explains why so many of them are located within metres of the stock exchange trading engines. An advantage of a millisecond or two in speed over your competition means the difference between profit and loss.

Not all algorithmic traders are looking for this kind of speed, however. An entirely new breed of machine-based trading has sprung up in recent years that is more concerned with filtering data from the tens of thousands of tradeable instruments around the world in search of opportunities. No human analyst – or team of analysts – can cover this ground the way machines can.

One such company is Rimar Capital, formed in 2014 by a group of traders, quantitative and financial analysts, and coders. “There’s simply too much data to possibly process. You aren’t just looking at the internal financial data related to tens of thousands of companies and other tradeable instruments; you also have external factors, such as Covid-19,” says Rimar Capital’s CEO Itai Liptz.

So, how did Rimar Capital’s algorithms deal with that event?

This is where AI becomes crucial. Liptz says at the first news of the outbreak of Covid-19, Rimar Capital’s AI systems were able to go back in history to study the effects of previous pandemics on world markets. Within minutes, they were able to pick up the likely extent of the drop in market prices. The AI systems issued sell orders early in the Covid-19 pandemic cycle and so protected investors from much of the carnage that followed.

Historical perspective

The ability to go back in history to assess the likely impact from black swan events such as Covid-19 would keep teams of human researchers busy for weeks. The speed with which AI can accomplish this, and act on it in the financial markets, makes a massive difference to overall financial returns.

It turns out that Covid-19 is a once-in-a-century event (although smaller pandemics such as SARS, Ebola and Swine Flu have all occurred in the last two decades). A study by Ishan Shah at Towards Data Science analysed pandemics going back as far as recorded history allows. “There are two trends emerging. One is that there is a significant fall in the number of deaths over the years. Another trend is the period has also significantly reduced. The reason for these is an improved healthcare system available to us and also a lot of effort that goes into finding and deploying vaccinations to the general public.”

If Rimar’s AI systems can detect and act at the very onset of Covid-19, how does this compare with human response times?

Rimar Capital offers a number of different investment strategies catering to different risk appetites:

• Its Short-only strategy (which attempts to profit from falling prices) is up 21% for the year to end April 2020 (and up 909% since inception).
• Rimar Fund A (a hedge fund that invests in securities based on both technical and fundamental data) achieved growth of 3.38% for the year to end April 2020, and is up 136% since inception.
• The Options Fund (which uses algorithms to trade in equity options forming part of the S&P 500) is up 6.6% for the year to end April 2020, and 1 400% since inception.
• The Options Fund+ (invested in options linked to US Treasuries and derivatives) is up 4.35% for the year to end April, and 2 400% since inception.
• The Global Macro 1 fund (using technical indicators to indicate buy and sell opportunities on the global markets) is down 37% for the year to date, but up 38 795% since inception.

These are stunning results, which in all instances have outperformed their benchmarks.

Based on these performances – bearing in mind the company was only formed in 2014 – it can be said we with some confidence that machines can beat humans at investing.

Dividend discount model

Machines can process data faster than humans, but NMRQL was formed to overcome the problem of in-built human bias in most investment decisions, by using unbiased algorithmic trading. Tom Schlebusch, CEO of NMRQL, founded the company in 2017 with former FNB CEO Michael Jordaan to offer machine-learning investment opportunities.

Millions of data points are run through the machine-based learning model before an investment decision is made, says Schlebusch.

Asked whether NMRQL is looking for inefficiencies in the markets (such as deviations from norms), he says: “We try to exploit efficiencies in three areas: data, models (algorithms) and processing power. This is best illustrated with an example. A manager is using earnings reports or the financial reports from companies as his data. He then uses a dividend discount model to build some idea of future value for his stock and does this processing using an Excel spreadsheet and a few analysts. One could argue that for this manager, the market is quite efficient as the data, the model and the process used are fairly generalised and available to almost all players.

“Contrast this with the very best guys out there who use petabytes of data that consist of unstructured data sources like sentiment data, satellite photos and news feeds, together with tick-by-tick data on almost any asset and economic and fundamental dataset.

This gets processed with deep learning quant models that can find relationships and inefficiencies in price between a multitude of assets, and then process this by using massive cloud processing and storage. I imagine the second manager would have the best edge and be able to exploit the opportunities, which others don’t have the tools to exploit.

Improving your information ratio is not only about getting calls right, but also about how many calls you make, which is called market breadth. The second manager has much larger breadth and much more info with which to improve performance.”

So do the algorithms trade automatically or is there still human judgment involved? “For many in this space, they do trade automatically as managers exploit shorter-term opportunities. At NMRQL, we’re not there yet; we still apply some human oversight,” says Schlebusch.

So how is the system performing?

“If you asked me six months ago, I would have said, ‘A little disappointing’; however, over the past six months, we made several large improvements. Most significantly was to include several regime models that try to distinguish good from bad environments. While we have underperformed the benchmark (inflation plus five percent) since inception, our numbers over the past year have significantly improved. For the year to date, we’ve been outperforming our benchmark handsomely.

We are at the infancy stage of these developments here in SA, even though we were possibly the first entrants to this environment locally.

The guys who do this well don’t publish what they do, so you have to find your own way. We’re confident that our models are improving all the time and that the long-term targets will be achieved, even more so now,” he says.

NMRQL’s systems avoided Steinhoff when others were still buying. At that time, the forecast scores on Steinhoff were just simply much poorer than other opportunities. Many other stocks offered better opportunities.

And, like Rimar Capital, its models started flashing on 25 February 2020 when the Covid- 19 crisis first started to seriously impact global m arkets. “ We sold quite a bit of our share holdings at that point and slowly sold a bit more into the drawdown. The models performed really well at the start of Covid-19,” says Schlebusch. “The bigger question is how they will perform from here onwards. We have not lost any money now since the start of the year. The question is if the crisis is over or if we are in for another move down? Time will tell.”

Schlebusch is confident that his machine learning systems will indicate when it’s time to start moving back into the market.

Despite the impressive performance of machine-based trading systems, the jury is out as to whether algorithms will completely displace humans. Markets are wild frontiers that aren’t prone to prediction. Liptz believes algorithmic trading will capture an ever larger slice of the investment universe but, like Schlebusch, he doubts it will ever fully replace them.

Schlebusch says machines will encroach on those trading models geared for shorter time periods, and that certain human functions can be entirely replaced by machines. “Will machines replace humans? This depends on your timeframe. In five years, possibly not.

The first steps will be to augment and assist, but in time, I definitely think certain human functions could be entirely replaced. The bigger question is how do we adjust to this?”

Ultimately, machines have two crucial advantages over humans: their lack of bias, and their ability to process vast volumes of data. Machines will not hold on to shares for some misplaced nostalgia. They are brutal, clinical and extremely fast. And that will only improve over time.

Law enforcement is ill-equipped and overburdened, and the legal process creates incentives to fight to the death. From Moneyweb.

Apart from a smattering of arrests on charges of corruption, a battalion of crooks walks around undisturbed.

The Zondo Commission of Inquiry into State Capture provides ample sport for an outraged public, but no convictions as yet. It will take years before prosecutors and investigators disgorge themselves of the Everest of paperwork accumulated during the inquiry.

There were eight arrests related to the VBS Bank heist, and four more among Tubular Construction and former Eskom executives accused of corruption related to the Kusile Power Station.

Read:Top construction company accused of R20m Kusile bribes

Civil society stepped in where Dudu Myeni is concerned. She was recently declared a delinquent director by the Pretoria High Court for dishonesty, negligence and recklessness while occupying the chair at South African Airways (SAA), which is now under business rescue.

Former SAA chair Dudu Myeni, was declared a delinquent director for life by the high court on May 27. Image: Moneyweb

It was the Organisation Undoing Tax Abuse (Outa) and the South African Airways Pilots Association (Saapa) that brought the legal suit against Myeni – not the responsible minister or National Treasury, which had to dole out roughly R50 billion to keep the airline afloat.

One might have thought that Treasury, presumably representing the interests of citizens, might have raised a whimper of concern over her destructive rampage when the bailout figure got to, say, R30 billion.

In the Tubular case, it was forensic investigator Paul O’Sullivan who appears to have kicked the case into high gear.

Why such a meagre body count for a corruption orgy that Open Secrets estimates cost the economy R5 trillion over five years due to state capture?

Legal deficiencies in SA

At a recent anti-bribery and corruption webinar, Herbert Smith Freehills director for corporate crime and investigations Cameron Dunstan-Smith highlighted key deficiencies in the SA legal landscape – key among them the deferred prosecution agreements (DPAs) that are so common in jurisdictions like the US, UK and Canada. These allow prosecutors to grant amnesty to defendants in cases such as fraud, provided they fulfil certain conditions, such as payment of a fine and implementation of compliance programmes designed to prevent any repetition of wrongdoing.

“South Africans may not like to hear of companies getting away with what they perceive to be such light penalties, but the reality is that these DPAs have proven themselves to be effective in changing corporate behaviour for the better and forcing wrongdoers to pay hefty fines – without having to admit guilt,” says Dunstan-Smith.

As a consequence, companies accused of wrongdoing find it more fruitful to defend allegations of corruption and wrongdoing to the highest court in the land. That can take years and cost millions.

Unlike well-resourced law enforcement and investigatory agencies in the UK and US, South Africa lacks the kind of enforcement resources with the right forensic and prosecutorial skills to bring wrongdoers to court. Companies are able to drag the legal process out for years, using the best lawyers money can buy. You need deep pockets to embark on any legal offence against corporate SA.

Deloitte in the crosshairs

A case in point is the disciplinary inquiry brought by the Independent Regulatory Board of Auditors (Irba) against Deloitte for its involvement in the failure of African Bank in 2014. This is an audit inquiry operating in a quasi-legal setting that has gone on since 2018 and reportedly cost millions of rands so far in legal fees.

Irba has a limited legal budget, which must surely blunt its enthusiasm for the fight against other auditors charged with wrongdoing.

Read: How the auditors keep dodging the fraud bullet

Since November 2018 it has also been investigating KPMG and its then-external auditor Sipho Malaba over the VBS heist. The maximum sanction currently allowed by law is R200 000, though far larger fines will likely be legislated in terms of amendments to the Irba Act currently under consideration.

The paucity of legal and financial penalties for corruption leaves it to the press to bring reputational harm to those deserving of it.

The one benefit of the Zondo Commission is the reputational damage visited on those hauled before the inquiry, even if the alleged wrongdoers have not yet had a chance to put their side of the story forward.

Foreign corruption in SA

For international companies accused of wrongdoing in SA, the reality is they may face far harsher penalties in their home country than they do here. A case in point is Hitachi, which in 2015 agreed to pay $19 million to settle claims brought by the US Securities and Exchange Commission on charges of violating the Foreign Corrupt Practices Act. It had inaccurately recorded improper payments to SA’s ruling political party in connection with contracts to build Eskom’s Medupi and Kusile power plants.

Read: Hitachi to settle US charges it paid ANC

Last month the US toughened its anti-corruption guidelines by evaluating whether a company’s anti-corruption compliance programme was effective at the time of an offence being committed and when a charge is brought.

US regulators pay scrupulous attention to whether companies’ anti-bribery and corruption programmes are adequately resourced and empowered to function effectively. In times of economic hardship, the temptation is for companies to divert resources from compliance programmes to more ‘worthy’ causes.

France set up an Anti-Corruption Agency in 2017 and has since launched 90 investigations, resulting in a number of trials.

Last year the UK passed the Overseas Production Orders Act, which gives UK law enforcement agencies the power to apply for an ‘Overseas Production Order’. Such an order requires an overseas communications service provider to supply or give access to electronic data it holds in relation to investigations of corruption. Refusal to do so constitutes contempt of court. These orders are only applicable where the UK has a cooperation agreement with the country in question.

Commissions no longer ‘token’ inquiries

Fiorella Noriega Del Valle, senior associate in the corporate crime and investigations practice at Herbert Smith Freehills, said one of the anti-corruption tools available under the Constitution and the Commission Act in South Africa is the power vested in the president to launch commissions of inquiry.

“Commissions of inquiry were previously seen as token inquiries, such as the one we had into the police force suppressing political opponents, but they are now seen as more credible because they focus on maladministration and corruption.”

She adds however that: “The recommendations [of the commission] are not binding, and the terms of reference not often as precise as indictments. Witnesses have limited protection, and there is no automatic right to legal representation. You can apply, but this is up to discretion of commission.”

Another problem arising from commissions of inquiry is that witnesses can expose themselves to criminal and civil proceedings, as happened to former Bosasa chief operating officer Angelo Agrizzi, who was charged by his former employer of theft after giving testimony to the Zondo Commission. Also charged for an alleged theft of R37.5 million was former Bosasa chief financial officer Andries van Tonder, who also gave testimony to Zondo claiming widespread corruption at the facilities management company.Read: Whistleblower Agrizzi arrested on corruption charges

Arsenal for the fight
To win the war on corruption, Dunstan-Smith says SA law enforcement agencies need an army of highly trained investigators, ranging from accounting to legal and data specialists, backed by prosecutorial teams capable of framing cases that are capable of success in court.

Another tool that would advance the fight against corruption is DPAs, which would short-circuit protracted court battles.

“There is still an attitude in SA that if you haven’t been found guilty of anything, why should you pay a fine even if you don’t have to admit guilt,” says Dunstan-Smith.

“The attitude overseas is quite different. Our law does not make allowance for DPAs, which is something that would definitely help in curtailing bribery and corruption.”

Read: SA’s war on graft is picking up speed. But will anyone go to jail?

Ciaran Ryan talks to Nompu Siziba on SAFM on the massive spike in demand for Krugerrands during the Covid lockdown as investors seek refuge against uncertainty. But the story of this surging demand goes back much further, to the ill-fated appointment of Des van Rooyen as finance minister in 2015 – an appointment that lasted little more than a weekend, and drove the rand into the sewer. Van Rooyen was obviously a tame political appointment brought in to replace a less pliable Nhlanhla Nene. This did wonders for Krugerrand demand.

Boosted by a strong gold price and quest for diversification. From Moneyweb.

Demand for Kruggerands, the top-selling gold coin in the world, is surging as buyers across the globe scramble for one of the few safe havens in times of economic distress.

Global demand for gold coins – including competitors such as the Canadian Maple Leaf, the Australian Kangaroo, the Austrian Philharmonic and the American Eagle – is up as much as 50% since last year as investors globally are looking for safe-haven assets.

Gold’s recent breach of the $1 800 per ounce barrier will likely further stimulate demand for coins. The coronavirus has given extra impetus to demand, in part because of the economic devastation of economic lockdowns around the world. The supply of gold has been crimped in part by temporary shutdowns of mines in countries like SA, resulting in interrupted physical supply chains across the globe.

Read: Is the rising gold price a self-fulfilling prophecy?

SA gold mines are now getting back to normal production after shutting down for a month at the start of the Covid-19 lockdown, which has started to ease the supply bottleneck.

Gold coin mints have also started to return to something approaching normal production after either shutting down or reducing output to mitigate risk at the start of the pandemic.

And this at a time when gold coin demand was in full throttle.

Krugerrands are managed by Prestige Bullion, a joint venture between the SA Mint and Rand Refinery, which is owned by the major mining houses. Since 1967 more than 52 million ounces of Krugerrands have been produced and sold.

Prestige Bullion MD Richard Collocott says demand for Krugerrands has been growing at roughly 50% a year since 2015. This was around the time Des van Rooyen was (briefly) appointed finance minister by then-president Jacob Zuma, but the real impetus for demand was a desire among SA and overseas buyers for risk diversification.

Read: Zimbabwe gold mines lure offshore investor despite economic ruin

“Krugerrand demand has been robust for the last several years, but we saw a spike in demand in February and March this year when the extent of the Covid-19 pandemic became apparent,” says Collocott. “We were hit with a perfect storm of surging demand and capacity limitations on manufacturing as a result of Covid-19 related risk management interventions. Demand was exceptional in February and March at the start of the pandemic, but has now returned to a ‘new normal’ which is still in a very high range.”

The gold is refined by Rand Refinery and cut into ‘blanks’ before being struck by South African Mint.

The Krugerrand has had a potted history, having fallen into relative disuse during the apartheid years, slipping at one point to the fifth most traded gold coin in the world. Things took a dramatic turn in the early 2000s, and especially after the 2008 financial crisis, when it was again the world’s top-selling gold coin. By 2016 it accounted for more than a quarter of all gold coins sold around the world.

Rand Refinery in Germiston was established by the then Chamber of Mines in 1920 to add value to locally produced gold.

It has since become one of the largest single-site precious metals refining and smelting complexes in the world, and recently completed a major expansion programme to gear up for the increase in demand.

Read: Harmony to start share sale to fund AngloGold deal

Most refiners globally were operating a reduced capacity for a period during the Covid-19 outbreak (Swiss refineries were briefly shut altogether), resulting in constricted physical supply chains which added 5-10% premiums for gold coins over the spot price of gold.

Krugerrands are considered legal tender in SA, so are zero-rated for value-added tax.

SA Bullion, a distributor of Krugerrands, has reported a surge in demand for coins this year, as well as minted bars and managed gold investments. Founder Hilton Davies says the interest in gold is rising across the globe as confidence in paper currencies declines.

“Gold has always done well in times of economic uncertainty and is regarded as a long-term hedge against currency debasement and inflation,” he says. “Over the last 20 years gold has appreciated at about 15% a year in rand terms, and we see this trend continuing.

“That explains why gold coins are in such high demand right now.”