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All that glitters … or not
Over the years, gold has managed to hold its own as a useful inclusion in portfolios that are worried about things like inflation and depreciation of fiat currencies. Many wise souls point out that buying the commodity is superior to buying the mines.
I’ve looked at this before and I’m not sure I agree that buying the commodity beats buying a basket of mines, as well-run mines should achieve operating leverage – earnings growth in excess of revenue growth.
I do fully agree that buying one mining group to take a view on gold is a dangerous pursuit, with Gold Fields doing an excellent job of reminding us of this.
For context of what might have been, AngloGold went first this week with earnings for the six months to June. With production up 2% year-on-year and cash costs per ounce dropping slightly, AngloGold did what it could to take advantage of a period in which average gold prices were roughly 13.5% higher for the group. Ebitda was thus 65% higher and Heps made a ridiculous jump of nearly 430%. When mining works, it works beautifully.
Alas, Gold Fields got none of that benefit. In a trading statement for the six months to June, the company delivered the highly disappointing news that Heps will be down by between 25% and 33% for the period. Unable to take advantage of the better gold prices because of a 20% drop in volumes, Gold Fields demonstrated many of the risks of the mining industry. The underlying operations struggled with issues ranging from the weather to mine-specific challenges. The company is expecting a better second half of the year.
Over five years, AngloGold is up 76% and Gold Fields is up 231%, so don’t be too quick to bestow greatness upon AngloGold. Year-to-date, though, AngloGold is up 54% and Gold Fields is up 8%. Single stocks are risky things.
Interesting week for mining
There was plenty of news in mining in the past week.
Mantengu Mining had the most unusual news of the week, with the Birca Copper deal hanging in the balance. Details have emerged that put the survival of that entity in doubt, with Mantengu subsequently announcing that it has managed to directly acquire the key mining right that was initially destined for Birca Copper. The lawyers are going to be busy there.
Copper 360 has declared the maiden reserve at Rietberg Copper Mine, with reserves up 50% versus the previously declared resource. Over at Orion Minerals, the company has been granted prospecting rights over a certain area at the Okiep Copper Project, marking another milestone for the group. Jubilee Metals, focused on copper in Zambia, also had great news to share, with operations commencing at the Roan front-end upgrade project.
There is a lot going on in copper, with the PGM industry out in the cold. Impala has reported a cataclysmic drop in Heps of between 86% and 90% for the year ended June. PGM prices have plummeted at a time when the group should be enjoying the benefit of the Royal Bafokeng acquisition. Ouch.
Glencore stole the show, though, with the news that it will be keeping its “dirty” coal and carbon steel assets. After engagement with shareholders on ESG considerations, it turns out that some practicalities have found their way into the ESG narrative. The planned split of Glencore into a transition metals group and a dirty group isn’t going to happen. Glencore reminded the market that it will implement its Climate Action Transition Plan in any case. DM
This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.
