Let Business Thrive

“With a population estimate of nearly 56 million people in South Africa, 2.85 percent of all South Africans are reliant on the GEPF for their savings and retirement. If you had to say that roughly 1 percent covers another 3 more, it is easy to suggest that this fund is responsible for the well being of 10 percent of South Africans.”


 

To market to market to buy a fat pig The Proteas sprung back like the two weeks after the winter rains in the Cape Floristic Region. Yes, a truly unique area of the world. Unique too is the platinum areas of South Africa (we produce 80 percent of the platinum globally), the Spanish threw it away and discarded it as an impure metal. In fact the name platina means “little silver”. Fast forward to a time when we need auto-catalytic convertors and the combustion engine, platinum is then wildly useful. Silly Spanish explorers! Then again, how were they supposed to know about the combustion engine? Only Leonardo da Vinci knew about airplanes and that stuff? The demand side is mostly driven by automotive, jewellery and to a lesser extent chemical uses.

Anyhows, talking platinum, Lonmin produced a set of numbers yesterday, in an otherwise quiet day, in which the stock popped 14 percent in London. The share price rallied nearly 15 percent during the course of the day, the dire situation is not as dire as thought – Lonmin Jumps Most in 3 Months as Cash Improves After Cost Cuts.

There are a few strange and almost unbelievable facts about Lonmin. Year to date the stock is down 45 percent, then again you knew that the situation was precarious. What I read yesterday though reminded me what a disaster it has been, this article from a few weeks back – Shorts Pile Into Cash-Strapped Lonmin as Platinum Flounders. Since 2009 the company has raised 1.7 billion Dollars, which at current exchange rates are 21.93 billion Rand. Hold on a second, I thought, the Lonmin market capitalisation is nowhere near that ….. as of close of business last evening it was 3.63 billion Rand, or 281.4 million Dollars at current exchange rates.

Huh? Forget what the business was worth before the rights issues, what your existing shares were worth, the 1.7 billion Dollars injected into Lonmin in three separate events is worth 16.7 percent of the cash amount. Or put differently, 16.7 US cents for every Dollar invested. Now shareholders have choices. The shorts as you can see have choices, they have gone from shorting 2 to 14 percent of the float, in part showing that expectations are growing for another rights issue. If it is not the case, i.e. the ship is taking on no more water, then the company may well see this rough period out, and the shorts will be wrong. For the moment, the shareholders that have sunk all this money into this business must be feeling like GM bond-holders before that business went bang. Bad.

The last little factoid worth leaving is the value of the Lonmin Reserves and Resources, the number of ounces (as at the end of 2016) says that the company is sitting on mineral reserves of 31.7 million ounces. At current exchange rates, 12.90 to the US Dollar and with the platinum price at 930 Dollars per fine ounce, the value of what is possibly mineable comes to an eye watering 380 billion Rand. Put differently, the market capitalisation is less than 1 percent of the mineral reserves. Telling everyone in mining what they know already, it may be worth whatever, if it costs more to get it out of the ground than it is worth, you might as well leave it there. And possibly dispelling the notion that these mines are worth billions. No, they (this one) is worth 280 million Dollars, and investors have been crushed badly over the last decade.

The main shareholder is currently the PIC, they own nearly 30 percent of the business. The PIC of course is a 100 year old plus organisation that manages around 1.85 trillion Rand worth of assets. The company manages money for the Government Employees Pension Fund (over 88 percent), the Unemployment Insurance Fund (the UIF), at around 6.7 percent of overall assets. According to the website of the Government Employees Pension Fund (the GEPF), more than 400 thousand pensioners and beneficiaries, as well as 1.2 million active members make up the fund.

With a population estimate of nearly 56 million people in South Africa, 2.85 percent of all South Africans are reliant on the GEPF for their savings and retirement. If you had to say that roughly 1 percent covers another 3 more, it is easy to suggest that this fund is responsible for the well being of 10 percent of South Africans. Nurses, policeman, firefighters, teachers, the list goes on and on. Even politicians themselves are invested here. All these little things make you think, a high road scenario and higher platinum usage (both jewellery and the combustion engine) means that the 30 percent investment in Lonmin will “go well”, the low road scenario means that the PIC, and by extension the GEPF and their members (nurses, teachers, policeman), end up with a “bad investment”. For the time being it looks bleak, the good news is that the ship seems to have stabilised. The point we are trying to make is that all of these “things” are linked closer to one-another than you think.

A quick look at the market scoreboards, stocks as a collective added over four-tenths of a percent, industrials rallied over one-third of a percent. Financials were stronger by over half a percent, the Rand lending a helping hand. Top of the pops were the likes of Kumba, South32 and Sanlam, as well as Amplats and Standard Bank. Vodacom touched a 12 month high, Capitec also rallied to 1 year high. In the losers column were some Rand hedges, Hammerson, Bidcorp, Intu and Mediclinic, all of which have significant exposure to the UK, the Brexit talks are starting in earnest with the British on a very weak footing. How do you think this ends? I suspect a soft and watered down version that doesn’t meet any single expectation of what it was thought to be.


 

Across the oceans wide and deep, stocks in New York, New York closed mixed. It is becoming increasingly obvious that the YUGE and tremendous healthcare repeal from the Trump administration is not going to happen. Some will question whether or not any of what he says or does will happen, I can’t say that I am a big fan of the man. I think that he is self important and not full of substance, i.e. someone who gives off the aura of success. My personal biases aside, the people chose him and you have to respect the will of the people. Stay out of politics and stay out of religion, ok? Session end the Dow closed a touch lower, as did the S&P 500, the nerds of NASDAQ managed to squeak out a small gain.

Tesla was in the news (when is it not), Bloomberg reports Tesla Says Driver Clarifies Autopilot Wasn’t on During Crash. I am amazed that the expectation is that the car should never crash. There are on average 96 crashes a day in the US, with around 35 thousand fatalities a year. If it is a Tesla, people somehow get excited about it. As a matter of interest, Sweden and the United Kingdom have a low crash rate, there is obviously a culture of safe driving.

Also, the vocal Elon Musk tweeted a “clarification” on this article – Tesla is dropping after Elon Musk says the stock price is ‘higher than we have any right to deserve’ (TSLA):

I agree with Musk. It is going to be very tricky for people to continue to value the business until they are at full throttle production. It is interesting to me too that he thinks that it is “placing bets”. It is what it is ….. I suspect that if you bet against Musk that you are going to be proven wrong, he is a man on a mission. To infinity and beyond, to borrow a line from Toy Story. Another tricky company to value reported after-hours, we will take a look at that one soon, Netflix. The stock is up sharply!


 

Linkfest, lap it up!

It is amazing how far this technology has come since 2013. It looks like the Hyperloop could be a low energy footprint transportation – Futuristic transportation startup Hyperloop One had its ‘Kitty Hawk moment’ – here’s where you could first see it. The technology is also gaining traction in Europe (The train of the future is coming to Europe. This is what you need to know).

Given how volatile the Bitcoin price is and the fact that it is mined, we should be calling it a commodity and not a currency – Bitcoin and Ethereum both crashed over the weekend.

Interesting to see where different nations fall on this graph. Given the fiscal woes in Greece it makes sense that they are at the bottom, followed by South Korea and Brazil who both have had presidents impeached recently – The Countries That Trust The Government Most And Least.

Infographic: The Countries That Trust The Government Most And Least  | Statista You will find more statistics at Statista


 

Home again, home again, jiggety-jog. It is Mandela Day. Make a difference, one little act of kindness at a time, try and do it every single day. Try extra hard today. Stocks across Asia are mixed, we should start the same!


Sent to you by Sasha, Byron and Michael on behalf of team Vestact.

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