Anglo American CEO Mark Cutifani exits on the crest of a wave

Written by Ciaran Ryan. Posted in Journalism

It was a record breaking sweep for the Anglo companies reporting results this week. From Moneyweb.

Anglo American's outgoing CEO Mark Cutifani. Image: Jason Alden/Bloomberg
Anglo American’s outgoing CEO Mark Cutifani. Image: Jason Alden/Bloomberg

Anglo American CEO Mark Cutifani hands over the reins in April, having delivered a blistering set of results for the year to December 31 2022.

The results were flattered by high commodity prices, which have streaked even further ahead since the close of the 2021 financial year.

It’s been a week of scintillating results for the Anglo stable, with Kumba and Anglo Platinum – and now Anglo American (AAC) – all announcing record profits.

Read: Kumba celebrates record year with 69% bump in dividend
Anglo Platinum’s record-breaking performance aided by surging PGM prices

AAC’s revenue was up 63% to $41.5 billion, and Ebitda (earnings before interest, tax, depreciation and amortisation) – fattened by a 56% mining margin – more than doubling to $20.6 billion (2020: $9.8 billion).

Profit attributable to shareholders leapt three-fold to $8.5 billion, with earnings per share up 185% to $7.22.

A special dividend of $0.50 a share has been added to a final dividend of $1.18, bringing to $4 billion the distribution to shareholders for 2021.

UBS noted in a report that the geopolitical risk of the Russia-Ukraine conflict could be positive for Anglo, with diamonds and platinum group metals most likely to benefit. Palladium prices jumped 3% to $2 587/oz on Thursday on news of hostilities.

Higher PGMs, diamond and iron prices translated into stronger cash flows, which in turn allowed the group to reduce net debt by $1.7 billion to $3.8 billion, leaving a gearing ratio of 10%.

Two projects expected to absorb the lion’s share of growth capex in the year ahead are the Quellaveco copper mine in Peru, one of the largest in the world, and a new marine diamond recovery vessel for Namibia. Quellaveco, 60% owned by Anglo, will be entirely powered by renewables when it goes live in 2022, following Anglo’s decision to source energy entirely from renewables in Chile as of 2021 and in Brazil from 2022. Construction of the copper mine began in 2018, with the first ore being excavated in October 2021. It will be ramped up to 300 000 tonnes a year.

Cutifani outlined how Anglo is determined to be a global leader in advancing the low-carbon economy, by exiting its thermal coal operations at Thungela and the Cerrejón coal operation in Colombia, and focusing on future-enabling metals and minerals.

More to come?

Sasfin Securities deputy chair David Shapiro says though Anglo has had a fantastic ride on the back of higher commodity prices over the last two years, there may be more good news to come – especially as the conflict between Russia and Ukraine plays out.

“I think Anglo sees this commodity wave, in certain of its metals at any rate, remaining firm for several years to come.”

As such, Anglo may have more gas in the tank yet. The group has positioned itself for the green economy, with massive investments in copper, nickel, iron ore and PGMs. Overall, iron ore production was up 3% for the year to 63.8 million tons (Mt), though subsidiary Kumba managed a 9% jump in output to 40.9Mt.

Copper production was unchanged over the prior year at 647 200 tonnes, and nickel was down 4% to 41 700 tonnes (2020: 43 500 tonnes) due to licensing delays and lower ore grades.

The average price for the group’s basket of products was up 43% over 2020, despite a drop in mineral prices in the first half of the year. PGMs led the way with a 36% increase in prices, powered largely by rhodium which was up 85% for the year.

An unfavourable forex environment in the countries in which it operates drained $1 billion from Ebitda, most of which came from the stronger rand.

This was offset by a $1.1 billion kick to Ebitda from the easing of Covid restrictions that blunted global demand in 2020, principally in the diamond market. De Beers’ rough diamond production increased by 29% to 32.3 million carats (2020: 25.1 million carats), in response to the strong recovery in consumer demand in 2021.

The group’s average weighted consumer price inflation rate for the year was 5% (2020: 2.9%) across all regions.

Source: Anglo American 2021 financial results

Cutifani said while he was reluctant to call the current environment a supercyclic, a range of metals still had upside, while supplies remained tight. The Russian invasion of Ukraine this week has already triggered fears of supply chain difficulties for certain commodities, notably oil and natural gas, nickel and copper.

After a year of record results like this, with negligible debt and a cash pile of $9 billion at year-end, Anglo is in the enviable position of either returning more cash to shareholders, buying back another chunk of shares, or going on a spending spree.

Gold, oil soar on Russia-Ukraine conflict

Written by Ciaran Ryan. Posted in Journalism

Supply disruptions are propelling prices of key commodities. From Moneyweb.

Nickel, copper, zinc, aluminium and even wheat food futures have also responded in anticipation of supply disruptions. Image: Bloomberg Creative Photos
Nickel, copper, zinc, aluminium and even wheat food futures have also responded in anticipation of supply disruptions. Image: Bloomberg Creative Photos

Thursday (February 24) saw gold shoot up more than 4% to $1 971 since Wednesday as conflict erupted between Ukraine and Russia over two breakaway provinces to the east of Ukraine.

Brent crude oil was up nearly 8% to $104.50 a barrel in response to news of the conflict.

Russian President Vladimir Putin earlier this week recognised the territorial integrity of the two separatist republics with majority ethnic Russians in Ukraine and deployed troops to the region.

Russian troops reportedly disembarked at the Black Sea port of Odessa in Ukraine.

Read:Stocks sink, Brent soars to $100 on Russia assault

EM-Rouble plummets to record low as Russia invades Ukraine

Rand sharply drops as Russia attacks Ukraine

Gold hit a 20-month high on news of the conflict, with gold bulls eyeing $3 000 an ounce as the next target.

Gold has traditionally performed well in times of geopolitical stress, and the latest move reaffirms that trend.

Also up over the last 24 hours are nickel, copper and zinc, three so-called ‘clean metals’ that are crucial to the green energy transition. Russia is a key supplier of nickel, which is up 25% since the start of the year. Aluminium is also up 20% since the start of the year. Wheat futures were up more than 5% on Thursday in anticipation of supply disruptions, as Russia and Ukraine account for an estimated 30% of the world’s wheat exports.

“It’s not just metals that are impacted by this conflict,” says David Shapiro, deputy chair of Sasfin Securities.

“Wheat and other food futures are also sharply higher in the last 24 hours, which is to be expected as Ukraine is a major producer of wheat and food for export to Europe.

“We don’t know how long this conflict is going to last but I don’t think it will be that long. What is clear is that these price increases are a knee-jerk reaction to the conflict, but we may see elevated prices for quite some time yet.

“What may be more crucial in the days and weeks ahead is how the [US] Federal Reserve responds to this. It will want to be very cautious in its response and not take any steps that may disrupt growth.”

JSE

The JSE was down 1.8% on Wednesday, with the ZAR-USD exchange rate weakening 1.3% to R15.30. Sasol’s share price was up 2.5% in Wednesday morning trade.

Terence Hove, financial analyst at Exness Africa, says we should brace ourselves for higher prices at the fuel pump for possibly several months.

“Russia is the third largest exporter of oil, mainly into Europe and Asia. Given global supply chain constraints coupled with a backlog on oil production to meet demand, that is likely to impact virtually all companies in terms of higher energy costs.

“The US and UK have already announced additional sanctions on Russia, and that will prove quite lethal, particularly as Russia’s oil customers may have to look elsewhere to meet their demand. There will be tough resistance to this from Russia’s biggest customers, given the impact this will have on their economies. This is especially true of strategic customers such as China.”

Though fuel inflationary pressures are intensifying, the decision by South Africa’s National Treasury to put a freeze on any increases in the fuel levy in the latest 2022 Budget should help soften any fuel price increases at the fuel pump, adds Hove.

Opportunity beckons for US energy suppliers

Craig Morkel, spokesperson for the SA Oil And Gas Association, says a war in Ukraine would likely result in oil and gas exports and related finances being sanctioned by not only Nato (North Atlantic Trade Treaty Organisation) members, but also its allies elsewhere.

“This would likely leave Russia with mainly China as an oil and gas trading partner to whom oil and gas supplies that were originally intended for the EU would be diverted,” says Morkel.

He adds that Europe’s gas requirements, especially in Germany, will need additional supplies from US liquified natural gas (LNG) suppliers and members of the Gas Exporting Countries Forum (GECF).

“The GECF and Russia concluded an agreement in November 2021 which will now be put under pressure by the sanctions introduced by Nato members. This would likely drive up the cost of crude and refined oil and gas on the spot market, given the diversion or hoarding of fuel reserves to support a war in the Ukraine.”

Morkel says US and GECF member countries would likely be closing deals with Germany and other importers of Russia’s oil and gas on a spot basis to fill the immediate supply gap from Russia and would likely do so at a significant premium.

Kumba celebrates record year with 69% bump in dividend

Written by Ciaran Ryan. Posted in Journalism

Making a sweet transition for incoming CEO Mpumi Zikalala. From Moneyweb.

Kumba’s Kolomela mine near Postmasburg in the Northern Cape. Image: Bloomberg
Kumba’s Kolomela mine near Postmasburg in the Northern Cape. Image: Bloomberg

Incoming Kumba CEO Mpumi Zikalala was handed a golden chalice by outgoing CEO Themba Mkhwanazi and had the pleasure of announcing another set of record results for the iron ore producer on Tuesday.

With Ebitda (earnings before interest, tax, depreciation and amortisation) up 41% to R64.6 billion for the year to December 2021, Kumba announced a full-year dividend of R103.20 a share, equivalent to 100% of its earnings.

This comes a day after another Anglo American stablemate, Anglo Platinum, announced at R300 a share dividend, more than six times the previous year’s payout.

Read: Anglo Platinum’s record-breaking performance aided by surging PGM prices

Revenue at Kumba was up 27% to R102.1 billion (2020: R80.1 billion), lofted by higher iron ore prices, though the results would have been better but for a stronger rand.

Though sales volumes were flat, Kumba’s average realised iron ore export price increased by 42% to $161 a wet metric tonne (wmt), up from $113/wmt in 2020.

2021 was a year of two halves for Kumba: the first buoyed by Chinese government stimulus to ramp up steel production, the second by production cuts in China as regulators sought to avert a potential energy crisis.

Those restrictions have since been relaxed, allowing for a recovery in Chinese steel production.

The iron ore price (the Platt 62 CFR index) averaged $160 a dry metric tonne (dmt) in 2021, up 48% on the previous year.

This is the second highest price on record, beaten only by the 2011 average of US$166/dmt. Chinese government stimulus and supply chain issues brought the iron ore price to new record levels, peaking at over $230/dmt in June.

After a brief economic crash in the first quarter of 2020 as a result of the spread of Covid, China led the world’s recovery with steel mills struggling to keep up with demand. The result was record steel prices in many parts of the world.

Demand for metallurgical and coking coal likewise broke all previous records, with prices of $400 a tonne and $675 a tonne at the market peak. Prices weakened in November 2021 following policy-driven production cuts in China.

Read:Chinese economic recovery helps Kumba to record profits

The rise and rise of SA’s bulk commodities

Unit costs at the Sishen operation in the Northern Cape were up nearly 20% to R432/tonne. Unit costs at the smaller Kolomela mine increased from R304/tonne to R324/tonne – a 6.5% increase.

A cumulative cost saving of R4.1 billion since 2018 made a sizeable contribution to Ebitda margins widening to 63% from 45%. Zikalala says a further R1 billion in cost savings is targeted for 2022.

Overall, operating expenses, excluding mineral royalties, increased 7% to R38.4 billion (2020: R35.8 billion), driven by an increase of R1.3 billion in operational costs and R1.3 billion in logistics costs.

Iron ore prices in USD

Source: Trading Economics

Seaborne iron ore exports were flat in 2021, with declines in Australia offset by higher output from Brazil, following the start-up of the Samarco mine and the recovery at Vale’s Brazilian operations after a dam failure in 2019 that killed 270 people.

Export sales for the year remained flat at 40.3 million tons (Mt), constrained by logistical issues at Transnet, though there were signs of improved equipment reliability and shipping throughput in the second half of the year.

Key focus areas in the years ahead are reducing the group’s carbon emissions, keeping costs under control, and extending the life of mine assets.

Kumba is developing a 60-80 megawatt solar power plant at Sishen, while the ore reserve at Sishen increased 14% in 2021 to 653.4Mt, extending the life of mine from 2032 to 2039, with further opportunities identified.

Capex is expected to be between R10.5 billion and R11.5 billion for 2022, with roughly a third of this ‘stay-in-business’ spending, and R4.1 billion to R4.5 billion going to the development of the Kapstevel South pit at Kolomela and the ultra-high-dense-media-separation (UHDMS) project intended to position Kumba as a low carbon producer.

More than luck

Terence Hove, market analyst at Exness Africa, says the results are a testament to Mkhwanazi’s foresight in initiating the Tswelelopele (‘Move forward’) strategy in 2018, leading to R4.1 billion in cost savings and adding four years to the Sishen mine life.

“When this programme was introduced, Kumba was hoping to get its ore reserves up to 800Mt by 2022 and in fact achieved it a year earlier. So when iron ore prices started to take off post the Covid crash of 2020, Kumba was perfectly positioned to capitalise on this.

“If you look back at 2019, the price of the premium product Kumba sells overseas was about $90 a tonne, and last year the average price received was $160/t. Like Gary Player used to say, ‘The more you practice, the better your luck’. That’s what’s happened at Kumba.”

The outlook for iron ore prices in 2022 is largely dependent on the health of the Chinese economy, with the property sector leading the way. Iron ore prices are already up nearly 20% for the year to date as previous restrictions on steel energy use in China have been eased.

An oil and gas supercycle may be on the way, and that’s huge for Africa

Written by Ciaran Ryan. Posted in Journalism

As oil sniffs $100 a barrel, Africa’s energy security is there for the taking. From Moneyweb.

Recent discoveries show the region is awash with oil and gas. Image: Bloomberg
Recent discoveries show the region is awash with oil and gas. Image: Bloomberg

Oil prices are up 70% over the last 12 months, with $100 a barrel now within reach. That opens opportunities for African oil and gas producers to fast-track projects that were shelved just two years ago when the Covid economic crash plunged prices to just above $20 per barrel (bbl).

Two years later, African oil and gas producers are dusting off stalled projects and ramping up exploration. There seems little doubt that prices of around $100/bbl won’t last.

But a sustainable price of about $60/bbl seems a reasonable bet, in which case billions of dollars of exploration funding could soon find its way to prospects that were deemed non-viable just a few years ago.

Read:New oil rig sent to South Africa for rare frontier drilling

Total will continue with its exploration in offshore SA

A sustainable oil price above $57/bbl is a game changer for Africa, says NJ Ayuk, chair of the African Energy Chamber. “High oil prices of around $100/bbl are not sustainable. At prices like this, new supply is going to flood the market and that will push prices down again. Volatile prices are good for no-one.

“At the prices we are seeing now, we are going to see the kind of exploration activity we haven’t seen in a decade or more.”

Up to 2.2 million barrels per day (bpd) of US tight oil could be unleashed in the event of a supercycle – with oil prices remaining around or above $100 per barrel – driven by growing demand and continued supply tightness, according to Rystad Energy.

Marginal producers elsewhere in the world will likewise be eyeing these prices with envy and stepping up outputs as fast as possible.

Pressure

All this is happening while environmental pressures to transition to cleaner energy are ramping up.

Having spent decades extracting cheap oil and gas from African countries, the developed world now wants Africa to conform to its clean energy agenda, which is heavily skewed towards renewables.

This is creating anger across the continent, not least by making it harder to secure funding for oil and gas projects that might lift Africa out of poverty.

“Africa contributes just 4% to global greenhouse gases, yet we are expected to follow the developed world’s agenda and embrace renewables at a time when 700 million Africans have no access to electricity and 900 million people have no access to clean cooking,” says Ayuk.

“Natural gas is being seen as a key component of the green transition, and some financing institutions are on board with this, but we need more.”

Opportunity

Says Craig Morkel, spokesperson for SA Oil and Gas: “We have an opportunity here to become self-sufficient in energy. But to get there we have to tighten regulations so explorers have legal certainty on what is permissible and what isn’t, and we don’t have to settle these issues in the court.

“If we don’t, we’re going to miss perhaps the best opportunity in decades to lift the entire country out of poverty.”

There have been some stunning discoveries off the coast of South Africa, but whether we get to participate in any oil and gas supercycle remains to be seen. The sub-continent stands on the cusp of an oil-induced economic flowering, with several stunning discoveries in recent years.

Consulting firm Kearney says southern Africa had little to offer the world in terms of oil and gas until a decade ago when a potential 500 trillion cubic feet of gas was identified across Mozambique and South Africa, along with 11 billion barrels of oil in Namibia. Together, these countries’ gas reserves equal those of Canada or Venezuela.

“These discoveries could transform the southern Africa region,” it says.

Some more recent finds have been even more stunning. Preliminary results from exploration wells in Namibia’s 6.3 million-acre Kavango Basin by Canadian oil and gas explorer Reconnaissance Africa points to a possible 120 billion barrels of oil, with indications of huge light oil and natural gas waiting to be extracted.

In February 2022, the Namibian government announced an assumed discovery of 700 million barrels of light oil at depths of 1 900 metres off the coast in the Orange sub-basic. The partners in this project are Shell (45%), Qatar Energy (45%) and Namibian energy company Namcor (10%).

Energy consulting group Wood Mackenzie says this find puts Namibia ahead of established producers like Gabon and Niger, and even newcomers like Senegal.

It ends a streak of dry wells dating back to the discovery of the Kudu gas field in 1974.

In May 2021, Minister of Mineral Resources and Energy Gwede Mantashe announced the discovery of pockets of shale gas in the Karoo Basin in the Free State, with estimates suggesting that South Africa holds a potential 390 trillion cubic feet of recoverable natural gas.

“These gas finds have the potential to drive the southern African country’s economy while diversifying its energy mix and facilitating an energy transition,” says Matthew Goosen, writing in Energy Capital & Power.

The Brulpadda gas discovery, announced in February 2019, followed by the Luiperd gas discovery off the south coast of Mossel Bay in South Africa, could hold in excess of one billion barrels of gas condensate each.

Read: Brulpadda: Let’s not squander the ‘money toad’

SA is reckoned to have nine billion barrels of oil and roughly 60 billion cubic feet of gas offshore.

The recent court victory against Shell and Mantashe blocking the oil company’s seismic surveys off the Wild Coast has been lauded by environmental groups, but such cases may douse enthusiasm for pursuing both onshore and offshore exploration, says Morkel.

Read:Shell faces activist outcry over SA Wild Coast seismic survey

Shell’s seismic vessel leaving SA after court loss

“We urgently need our regulatory framework to harmonise environmental and developmental imperatives as provided for in Section 34 of our Constitution,” he says. “If we don’t, we risk losing a great opportunity to transform the country by pursuing energy self-sufficiency.

“South Africa has a significant near-term opportunity to achieve its social development goals by reducing its dependence on US dollar-denominated crude oil, gas and refined product imports and increasing the exploitation of its possible, probable and proven indigenous oil and gas endowments that could be denominated in rand. But only if the applicable regulatory and tax regime would create the enabling environment to do so.”

Exploration and extraction

Onshore exploration and gas extraction has even greater potential to generate jobs and wealth for the country as 70% of costs are rand-denominated, as opposed to offshore exploration, where costs are mostly priced in US dollars.

Also in 2021, Italian energy company Eni announced another massive discovery of 200-250 million barrels of oil in the Cabaҫa Development Area, off the coast of Angola, with an even bigger find of 500-700 million barrels of oil equivalent off the coast of Ghana in west Africa.

This pales alongside the discovery, also by Eni, off the coast of Côte d’Ivoire with reserves estimated at between 1.5 and 2 billion barrels of oil and approximately 1.8 to 2.4 trillion cubic feet of natural gas.

Brent crude in USD

Source: ShareMagic

Recent discoveries show the sub-continent is awash with oil and gas.

The only question, says Ayuk, is whether SA joins the party and uses its natural resources to change the country’s economic course for good.

Anglo Platinum’s record-breaking performance aided by surging PGM prices

Written by Ciaran Ryan. Posted in Journalism

PGM prices were up 22% in 2021, helping the group to a record R108bn in earnings. From Moneyweb.

The miner saw a 22% improvement in the basket price for PGMs to R44 511 per oz, against a unit cost of R12 831 per oz. Image: Siphiwe Sibeko/Reuters
The miner saw a 22% improvement in the basket price for PGMs to R44 511 per oz, against a unit cost of R12 831 per oz. Image: Siphiwe Sibeko/Reuters

Anglo Platinum (Amplats) reported record earnings for the year to December 2021 with a cash dividend of R300 per share for the full year, more than six times the previous year’s payout.

There were smiles all round as CEO Natascha Viljoen went through the accomplishments of the year at the results presentation on Monday.

There is very little to quibble with in the numbers: Ebitda (earnings before interest, tax, depreciation and amortisation) came in at R108 billion, smashing all previous records (2020: R41.6 billion) while return on capital employed was 183% (2020: 72%).

This was Viljoen’s second year announcing the results for the world’s largest platinum group metals (PGM) producer, and fortune has certainly been on her side, with a 22% improvement in the rand basket price for PGMs to R44 511 per ounce, against a unit cost of R12 831 per ounce.

This was achieved despite 13% higher production to 4.3 million ounces for the year.

In the previous year (2020), the unit cost per PGM ounce produced was just below R11 800, against a rand basket price of R33 320/oz, which was 71% up on 2019.

In 2021, the unit cost per PGM ounce was up just 9% to R12 831, despite 13% higher production for the year. The increase includes input cost inflation of 14%, made up of labour cost increases of 7%, electricity of 14% and steel of 47%.

Capex

With margins like that, the temptation is to give inflation some slack, but even here Anglo Platinum battened down the hatches, with capital expenditure at R6.4 billion for 2021.

Some R500 billion went on repairs to the Anglo Converter Plant (ACP), which caused a 42% drop in refined production to 2.7 million ounces in 2020 following an explosion, with R350 million recovered from insurance.

Read: Anglo American Platinum shuts unit at processing plant

Those setbacks are now clearly a thing of the past.

Production

Anglo Platinum almost doubled its refined production to 5.2 million ounces in 2021, in part due to processing of inventory built up as a result of the converter plant explosion, and record throughputs from a sleeker refining plant.

This led to an 82% increase in sales volumes to just over 5.2 million ounces.

Total capex for 2021 was R13.6 billion, of which:

  • R7.3 was ‘stay-in-business’ capex (linked to existing rather than new projects);
  • R2 billion was spent on breakthrough projects;
  • R3 billion on capitalised waste stripping; and
  • R1.2 billion on growth and life-extension projects.

The company ended the year with net cash of R49.1 billion after paying dividends of R55.7 billion and R34.8 billion in taxes and royalties.

Key areas of focus in the coming year are the mechanisation and modernisation of Amandelbult, extending the life of mine beyond 30 years at Mototolo/Der Brochen in Limpopo, and de-bottlenecking of the ACP plant to facilitate the processing of higher volumes of base metals coming out of Mogalakwena, also in Limpopo.

“We have the largest processing capability in the PGMs industry, and our integrated value chain creates optionality with significant potential,” says Viljoen.

“We will focus our capital decisions across the portfolio to ensure we maximise our full value potential, including progressing the Future of Mogalakwena work, which continues to evolve as we progress.”

One potential bottleneck to future sales – the shortage of chips available to car makers – appears to be easing, with Anglo Platinum expecting car sales in 2023 to exceed pre-Covid levels.

Short term: easing chip shortage allows rising auto production

Source: Amplats 2022 results presentation (click to enlarge)

Looking to the year ahead, Viljoen expects PGM demand to rise on the back of a recovery in light-duty vehicles production, offset by a modest increase in PGM supply, primarily from recycled autocatalysts as more cars are scrapped.

After a superb 2021, refined production is likely to normalise around 4.2-4.6 million ounces. Unit costs per ounce are likely to range between R13 800 and R14 500, with capex for the coming year expected to top R18 billion.

Anglo Platinum is now trading at more than three times the crash in price immediately after the announcement of Covid lockdowns, though this is still more than 10% off the highs reached more than a year ago in March 2021 on the back of higher PGM prices.

South Deep returns Gold Fields’s faith in buckets

Written by Ciaran Ryan. Posted in Journalism

Acquired in 2007, South Deep was a costly and unruly child. The faith shown it by Gold Fields was returned in buckets last year. From Moneyweb.

At one stage South Deep was racking up losses of R100m a month. Image: Supplied
At one stage South Deep was racking up losses of R100m a month. Image: Supplied

One of the big surprises in Gold Fields’s annual results for the year to December 2021 was the improvement at South Deep, where attributable production grew 29% to 293 000 ounces.

Long regarded as the prodigal child within the portfolio, South Deep was a costly and unruly producer that now seems to have redeemed the faith and treasure showered on it by Gold Fields, which acquired the mine in 2007.

CEO Chris Griffith expects better things from the mine in the year ahead, with production expected to top 312 000 oz in 2022.

Read: Could this be gold’s year to shine?

This was Griffith’s maiden year presenting results as CEO, having taken over from Nick Holland nearly a year ago. It was Holland who initiated a restructure at South Deep more than three years ago, and the fruits of those efforts are now visible.

Griffith says production at South Deep is likely to grow by a further 20-30% to 345 000-375 000 oz in the next three to four years.

That will come as a relief to investors concerned at the billions invested in the mine to make it work, and which at one time was racking up losses of R100 million a month.

Cost of sales before amortisation and depreciation at South Deep increased by 20% from R3.751 million ($229 million) in 2020 to R4.510 million ($305 million) in 2021, mainly due to increased volumes mined and processed as well as inflationary increases.

Mine inflation was running at 10.4% in South Africa and a far more manageable 5.8% in Ghana.

Production for the year

Gold Fields’s total production for the year was up 5% to about 2.3 million oz, and slightly less than half of that came out of Australia.

There were no big surprises from the Australian mines, which maintained production at pretty much the same levels as the previous year.

In West Africa, the Damang mine had a respectable stanza with a 14% increase in sales, finishing the year at about a quarter of a million ounces. Overall, West African output was slightly shy of 800 000 oz.

Read:
How miners have come to the rescue of the fiscus – and shareholders
DRDGold rewards shareholders despite drop in revenues at interim stage

The Tarkwa mine in the west of Ghana continues to be a faithful producer, though there will be some concern at the 16% drop in production from the Asanko mine, which is managed by Galiano. This is a relatively small part of the portfolio, and Galiano is expected to update the market on the outlook for Asanko by the end of March.

Annual production is expected to start declining at some mines, such as Damang in Ghana, as they come to the end of their lives.

Replacing declining production

Griffith says the Salares Norte project in Chile, which will add about 450 000 oz a year for seven years and has an expected life of nearly 12 years, forms a key part of the programme to replace the declining production.

Some 200 000 oz of gold will come on stream from Salares Norte in 2023, rising to 550 000 oz in 2024.

Gold Fields has allocated $330 million of its roughly $1 billion capital spending for the coming year to this project.

Continuing improvements at South Deep, and the possibility of extending the life of mine at Damang, should further compensate for loss of production elsewhere in the group.

Griffith says the group is spending R760 million on a 50 megawatt solar plant at South Deep, which will save it R100 million a year in electricity costs and be paid off in five years. It will also reduce carbon output by 100 kilotons a year.

Production outlook

Gold production is expected to rise by upwards of 2.72 Moz by 2024, which is 20% higher than it was in 2021.

That’s going to require South Deep to hit its target production level of 345 000-370 000 oz over the next three to four years, with Salares Norte making good on its production target of 200 000 oz next year, rising to 550 000 oz the year after.

There could also be some pleasant surprises from Damang, which is expected to produce 230 000 oz in 2022, falling to 150 000 oz in 2023, with production thereafter based on stockpile treatment.

Project studies are underway at Damang to determine whether life extension projects are financially viable. The challenge, says Griffith, is to maintain peak production at 2.7 Moz a year.

Read: Gold Fields would consider joint ventures to bolster output

For the year just passed, all-in sustaining cost (AISC) rose 8.8% to $1 063, while the average gold price received for the group was $1 793/oz.

A total of $100 million was shaved off net debt (now $969 million), bringing the net debt to adjusted Ebitda (earnings before interest, tax, depreciation and amortisation) ratio to 0.4 from 0.56 the prior year.

That helped reduced net interest paid by 22% to $83 million.

Revenue increased by 8% from $3 892 million in 2020 to $4 195 million in 2021 due to the increased volume of gold sold and higher price received.

Read: Gold Fields aims to cut carbon emissions by 30% by 2030

DRDGold rewards shareholders despite drop in revenues at interim stage

Written by Ciaran Ryan. Posted in Journalism

Covid had limited impact on performance, though climate change is now noticeable affecting operations. From Moneyweb.

West Rand Tailings Retreatment Project. Image: Supplied
West Rand Tailings Retreatment Project. Image: Supplied

Surface gold treatment group DRDGold has rewarded shareholders with a 20c a share dividend, paid out of income reserves – despite a 48% drop in earnings per share.

Revenue was down 16% to R2.48 billion for the six months to December 2021, due to a 13% drop in the rand price of gold. Gold production was down 3% to 2 886kg, with average yields 4% lower than the previous reporting period.

The lower revenue and higher costs pinched operating margins from the previous 48.4% to 33.3%.

The group has no bank debt and is sitting with cash of about R2.24 billion. Shareholders are to receive a 20c dividend, which is half that paid out for the prior period in 2020. The current dividend will be drawn from reserves built up in prior periods.

Earnings per share were down 48% to 58c (six months to December 2020: 111c).

The group operates two surface treatment plants, Ergo and Far West Gold Recoveries, both of which exceeded forecasted production by just over 5 980 ozs. This softened the impact of the depletion of higher-grade reserves at Ergo and set the business up favourably to achieve full-year production guidance, says DRDGold.

Covid had limited impact on group operations due to the attitude of staff and better than forecast production.

Group cash operating unit costs were 13% higher at R576 444/kg.

Capex at R145.1 million was slightly lower than the prior period and was predominantly for sustaining operations.

CEO Niël Pretorius says the impacts of climate change are noticeable, with weather patterns increasingly volatile.

“Droughts are drier and longer, and rainstorms more frequent and fiercer. We are also operating in an environment of power supply and cost uncertainty.”

The group says it will build a solar power plant and a power storage facility, and capex for this project has been approved by the board. This involves an upgrade to the existing supply line to DRDGold’s Brakpan/Withok tailings storage facility (TSF), and the construction of an initial 20MW PV plant and the first ten power storage facilities of 10MW each.

The group is also exploring the feasibility of expanding its Driefontein 2 plant to process 1 million tonnes a month, doubling its current volume capacity. The design of a previous plan to build a regional tailings facility – capable of receiving 800 million tonnes of displaced mine waste over its operating lifespan – was rejected by the Department of and Sanitation, prompting the group to explore alternatives.

RB Platinum to shareholders: Take the Impala buyout offer

Written by Ciaran Ryan. Posted in Journalism

Impala Platinum looks like it has found a home for its sizeable cash hoard as Royal Bafokeng Platinum recommends shareholders accept its buyout offer. From Moneyweb.

The timing of the deal appears near perfect for RBPlat shareholders. Image: Supplied
The timing of the deal appears near perfect for RBPlat shareholders. Image: Supplied

Royal Bafokeng Platinum (RBPlat) was kicked into play in October last year when Impala made a cash and shares offer for 100% of its shares.

RBPlat responded to what it saw as a lowball offer by agreeing to sell 32.8% of its shareholding to Northam, with an option to extend this offer to 33.3%.

That clearly got Impala’s attention and forced it to sharpen its pencil. It came back with a better offer of R150 for each RBPlat share, made up of R90 cash and 0.3 ordinary shares in Implats per RBPlat share. That was a 22% premium to the RBPlat share price as at November 24, 2021, when the deal was first proposed.

Implats meanwhile went out and got institutional shareholders in RBPlat to pledge 24.52% of the shares to it.

Read:Northam outfoxes Impala Platinum with R17bn Royal Bafokeng deal

Implats renews Royal Bafokeng bid, valuing miner at R43.4bn

The battle for Royal Bafokeng Platinum gets white hot

From a low of around R20 at the depth of the Covid crash in March 2020, RBPlat was trading this week above R160, an eight-fold increase in value. The timing of the deal for RBPlat shareholders appears near perfect.

RBPlat has a market cap of about R29 billion, and at the halfway stage in 2021 Implats had cash of around R24 billion.

Sasfin Securities deputy chair David Shapiro says the Implats offer made most sense, as it has the cash and the muscle to carry the project forward.

That didn’t stop Northam putting up a valiant fight for the last known shallow high grade Merensky resources and reserves still available for mining in South Africa. In December it had acquired about 35% of RBPlat.

Though Northam made a higher cash offer (R180 per RBPlat share), the Implats offer makes more sense from several aspects.

The real sweetener for RBPlat shareholders is the part-payment in Impacts shares and the prospect of a generous dividend flow in the years ahead.

The acquisition is vital for Implats, which has just 10 years left on its existing mining operations.

Implats expects a successful takeover of RBPlat to yield upwards of 600 000 ounces of 6E PGMs (platinum, palladium, rhodium, ruthenium, osmium and gold) a year and extend the life of its Rustenburg mines by 10 to 15 years.

Existing ties

RBPlat and Implats have a long-standing relationship, underpinned by royalty agreements signed in 2010 covering ore mined by Implats on RBPlat properties. RBPlat earns royalties equivalent to 17.5% of gross platinum group metals (including gold, nickel and copper) on certain of its properties mined by Implats at its 6, 8 and 20 shafts.

In a circular to shareholders last week, RBPlats advised that the 6 and 8 shaft royalty agreement was renegotiated in 2013 and is linked to market conditions and the profitability of the Implats Rustenburg operations.

Implats now pays Royal Bafokeng Resources, a wholly-owned subsidiary of RBPlat, a royalty that is based upon a factor that is linked to the Implats Rustenburg operations’ gross margin with a minimum of 5% and a maximum of 25% of gross PGM, gold, nickel and copper revenue. RBPlat anticipates earning royalties from the 6 and 8 shaft agreement up to 2024 and from the 20 shaft agreement for approximately 30 years.

Should the mandatory share offer be implemented and Implats acquire more than 50% of RBPlats, the latter will then be delisted.

New Victoria Falls Stock Exchange aims to revitalise the Zimbabwean economy

Written by Ciaran Ryan. Posted in Journalism

It’s the first hard currency stock exchange in sub–Saharan Africa. From Moneyweb.

Taking its name from Africa's most iconic waterfall, the new stock exchange has strategically opted to trade exclusively in US dollars. Image: Shutterstock
Taking its name from Africa’s most iconic waterfall, the new stock exchange has strategically opted to trade exclusively in US dollars. Image: Shutterstock

Officially launched in December 2021, the Victoria Falls Stock Exchange (VFEX) is the first bourse on the sub-continent trading exclusively in US dollars.

So far it has just four listings – three miners and one agricultural processing firm – but the pipeline of upcoming listings is growing by the week, says the exchange’s CEO Justin Bgoni.

“Our target is to have 10 listings by the end of this year, and we think South African companies would find benefit in listing on the VFEX, not least because we trade exclusively in US dollars.

“It’s an undeniable fact that African countries are handicapped by weak national currencies, and this is something we set out to solve.”

Read: Zimbabwe’s biggest bank to list on Victoria Falls Stock Exchange

The VFEX currently falls under the Zimbabwe Stock Exchange (ZSE), which trades only in the rapidly depreciating Zimbabwe dollar. This makes it unattractive for ZSE-listed companies to raise capital, which is one of the primary purposes of the exchange, says Bgoni.

After adopting hard currencies like the US dollar and rand for several years, the Zimbabwe dollar was reintroduced by the government in 2019 at parity with the US dollar, but now trades at Z$115 to the greenback, and twice that on the black market, according to Bloomberg.

Moreover, several ZSE-listed companies like Old Mutual, PPC and Seedco International, have been suspended over claims they are being used as a means of funnelling funds out of the country.

Read:
Zimbabwe to list bond on local bourse for first time in 20 years
Old Mutual to move Zimbabwe listing
Zimbabwe ruling party wants Old Mutual out of stock exchange

Though the government says there is no evidence the companies themselves are involved in this practice, investors were reportedly able to purchase these fully fungible shares on the ZSE and cash them in on other exchanges on which they are listed.

Old Mutual, which until a few years ago had a London listing, is currently listed on the Johannesburg Stock Exchange (JSE) as well as in Botswana and Namibia. PPC is quoted on the Botswana Stock Exchange and the JSE. These companies have issued statements saying they are working with authorities to resolve the situation that gave rise to the suspensions.

One of the suspended companies, Seedco International, has since transferred its listing to the VFEX.

“The problem that we had on the ZSE is that companies are not raising money through new stock issues because of the currency issue. If you float new shares, you can only do this in Zimbabwe dollars, and when as a foreign investor you sell those shares, you have to convert the local currency into US dollars through the central bank auctions,” says Bgoni.

“It’s very bureaucratic and there’s a limit on how much foreign currency is available.”

Tax benefits

There are some tax benefits to listing on the VFEX over the ZSE: 5% withholding tax on dividends (compared to 10% on the ZSE) and exemption from capital gains withholding tax (1.5-2% on the ZSE).

Capital raised by a company listed on the VFEX may be held in an approved local or offshore account with an internationally recognised banking institution.

The latest listing on the VFEX is Caledonia Mining Corporation, which raised close to $8 million in December last year exclusively from Zimbabwean investors.

Bgoni is encouraged by the fact that the capital raise was oversubscribed, demonstrating that there is pent-up appetite within Zimbabwe for quality listed investments.

The VFEX offers companies the ability to list different securities such as debt, equity, exchange-traded funds (ETFs) and real estate investment trusts (Reits).

Read: SA Reits: Performance, trends and outlook

“ETFs and Reits are particularly attractive for Zimbabweans, who find it difficult to invest in offshore assets. We also see huge opportunities for listing mining companies that have operations in Zimbabwe and have trouble gaining full access to the revenues generated from mining,” says Bgoni.

“We have overcome that problem on the VFEX, as miners now have 100% access to hard currency revenues generated from incremental commodity sales.”

Among the companies in discussion with the exchange are several miners looking for dual or secondary listings.

Revitalising the economy

Bgoni sees the newly launched VFEX playing a crucial role in the revitalisation of the battered Zimbabwean economy.

A chartered accountant who spent 10 years in Johannesburg before moving to New Zealand, Bgoni was lured back to the country of his birth by the prospect of kick-starting the new exchange and spearheading an ambitious project to change the country’s economic trajectory.

Read:
Another flurry of delistings hits JSE
The sounds of Zimbabwe
UAE, Zimbabwe sign pact that may see Victoria Falls gold market

Roughly one million people visit Victoria Falls each year, though that figure has declined as a result of Covid. The area is largely shielded from the currency problems in other parts of the country due to the volume of US dollars generated through tourism.

Victoria Falls has also been designated a Special Economic Zone (SEZ) and International Financial Centre, with plans to confer city status to the municipality.

It is all part of broader plans to reposition Victoria Falls, not just as a major tourism destination, but as the new financial hub of Zimbabwe, similar to that in Mauritius.

Approved SEZ investors pay 0% tax for the first five years and 25% thereafter, with various tax breaks and allowances for foreign investment in certain segments.

This forms part of the new Batoka City, a key component of the Zimbabwean government’s drive to steer development in Matabeleland North, particularly the Victoria Falls-Hwange-Binga corridor.

Bgoni says there are plenty of good reasons for African companies, including those from SA, to explore a listing on the VFEX.

“It’s one of the most beautiful places in the world for a start. You can raise capital in hard currency, you get tax benefits, and I believe we have solved many of the problems faced by South African companies operating in the region, by making it easy to access the capital they need to operate, and to keep the revenues that they produce without having to go through the central bank auctions.”

Amplats expects blowout results

Written by Ciaran Ryan. Posted in Journalism

Helped by better commodity prices and an 82% increase in PGM sales volumes. From Moneyweb.

Amplats accounts for about a quarter of global palladium supply, mainly used in the production of petrol-driven cars. Image: Siphiwe Sibeko/Reuters
Amplats accounts for about a quarter of global palladium supply, mainly used in the production of petrol-driven cars. Image: Siphiwe Sibeko/Reuters

Anglo American Platinum (Amplats) says it expects another spectacular set of results for the year to December 2021, with headline earnings likely to increase by between 146% and 166%.

In a Sens statement released on Friday, the company said the expected increase in headline earnings was primarily driven by a 22% increase in the rand basket price of platinum group metals (PGMs) and an 82% increase in PGM sales volumes.

Much of this increase in volumes arose from the sale of inventory built up when Amplats declared force majeure after a converter unit was damaged and shut down in 2020.

Read: It never rains but it pours: Sasol, coronavirus, and now Amplats

The improvement in sales volumes was offset in part by the higher costs of concentrate purchases, higher taxation and royalties stemming from growth in sales, as well as higher mining and processing costs stemming from higher input inflation and increased production.

Amplats accounts for about a quarter of global palladium supply, mainly used in the production of petrol-driven cars, and a whopping 42% of global platinum and rhodium supply.

The company says it expects headline earnings to be between R74.8 billion and R80.8 billion (2020: R30.3 billion) and headline earnings per share will likely increase to between 28 435 cents and 30 716 cents (2020: 11 554 cents).

Amplats says headline earnings per share are likely to be at least 28 397 cents.

Rhodium prices surged to all-time highs in early 2021, but then fell by half in the second part of 2021, with PGM prices starting to firm again at the start of 2022.

SA producers account for more than 80% of global rhodium supply, a result of the relatively unique PGM geology on the sub-continent. Though rhodium represents a relatively small percentage of total PGM ounces produced, the surging price has had an outsized impact on bottom line results for producers like Amplats.

Read: Stock picks from top SA market watchers and money managers

PGM prices in USD

Source: ShareMagic

Rhodium’s importance to car manufacturers has increased substantially, as it is a key element in autocatalysts used for both diesel and petrol vehicles.

Car makers started switching from platinum to palladium several years ago in part to reduce the risks of being exposed to South African producers at the mercy of volatile political and labour conditions.

PGMs are vital to the emerging green economy, particularly hydrogen fuel cells. This is likely to be a key dynamic in the PGM market in the decade ahead.

Amplats closed over 5% up (almost R100 a share) on Friday, at R1 948.56.