MONEYWEB: Steven Joffe is in the studio, the chief executive of Gold Reef. How about this one - if you guys were to land something in Santiago? All right, it's only 40% of it, but nobody has got a licence there at the moment in Santiago. It's a very wealthy country, half of the Chilean economy is in this area, where they are going to have a single casino licence. It's got to be a beaut?

STEVEN JOFFE: I absolutely love it. I have been to Santiago, I've walked the streets, I've seen the people, I've seen how they spend their time, and I'm sure this is going to be a brilliant investment.

MONEYWEB: A 40c share price improvement  in Gold Reef Resorts today. Sun International didn't really react to the news yet.

DAVID SHAPIRO: Alec, it [Sun International] has had a tremendous run already. If you look where it's come from, I think in the last six months, around about from R107 all the way up to R130. So there's a huge amount built into the price already. But I don't think it's the end of the run for any of these companies.

MONEYWEB: Incidentally, Sun International went up a rand a share today, or 0.8% to R125 a share. Steven Joffe, fascinating story, really, of Gold Reef Resorts. You have had your problems with M-Net, fighting with them about the Gold Reef Theme Park - we will talk about that in a moment. But the big news coming out of Gold Reefs at the moment is that you have secured another licence in Gauteng - and I mentioned earlier that Grand West is the No 1 casino for Sun International. But when you look at the other groups, and we are going to talk to Ernie Joubert from Peermont a little later, their Emperors makes up 75%, three-quarters of the profits of Peermont Global. Your Gold Reef City makes up 55% of your profits, so over half of your profits. Now you are going to get another casino in the Gauteng area - that is also going to make a big investment for you into the future. This is the seventh and presumably the last licence that's been awarded in Gauteng. Are you expecting that this new casino, Silverstar, will be producing the kind of profits that you are seeing out of Emperors and indeed your own Gold Reef City?

STEVEN JOFFE: Yes, absolutely. The difficulty for us in Silverstar projects is our limitation on slot machines and tables - we are limited to 700 slot machines and 30 tables. So profit per device - I think we are going to be looking at amongst the highest in the province. But, as I say, we have got a limitation.

MONEYWEB: Just a bit about the story, because it is an interesting one. Silverstar - how did it land up in the Gold Reefs portfolio?

STEVEN JOFFE: Well, it's a project that's been in and out of the courts for like eight years. And about two years ago, the vendors at the time were really running out of money and they approached us as to whether we could bankroll them on the basis of our ultimate sale to us. And we did the deal at the time, and we took a bit of risk. But it all sort of worked out and we got all the regulatory approvals over the last two years, and now we are building.

MONEYWEB: So it's the only casino in Gauteng that hasn't been built yet. What stopped them?

STEVEN JOFFE: I've been in court with some of the other industry players nearby for a long time.

MONEYWEB: So where is it based?

STEVEN JOFFE: It's near Krugersdorp and near Montecasino.

MONEYWEB: Ah, so Montecasino was unhappy that it might actually take some of its catchment area?

STEVEN JOFFE: Yes, that is the basis of the legal dispute.

MONEYWEB: Now, when you say you are limited to a number of tables and slot machines, what exactly does that mean?

STEVEN JOFFE: For every licence in South Africa you get issued a specific number of positions, slots and/or tables, and you are not allowed to exceed that without an amendment to your licence. And in Gauteng the gaming board have taken a very strict view of this and have not allowed any increase, aside from a swap between the Emerald Casino and Peermont's Emperors Casino. But there what they did is they literally took positions from the one to the other.

MONEYWEB: But that sounds like anti-competitive practice, sounds like they're just protecting the casino operators in the same way that the radio licence regulators are protecting certain radio stations?

STEVEN JOFFE: I think it's actually quite a responsible device ...

MONEYWEB: Well, you're in the industry, you would think so. But what if we were to have more competition? What if anybody was allowed to put up as many tables and as many slot machines as they liked?

STEVEN JOFFE: I think what you would land up was a whole bunch of [indistinct] with slot machines, without any of the tourism infrastructure that we've created.

MONEYWEB: Do people go to casinos for tourism?

STEVEN JOFFE: Well, I can tell you now that I believe, and I really believe, that things like the Convention Centre, add so much to our tourism and infrastructure, it even helps to bring in things like the World Cup. Certainly, huge delegations have come to visit at our resorts, at the theme Park, the [indistinct] museum, and I'm sure at the Convention Centre. So I don't think you should underestimate the level of the infrastructure that's being created.

MONEYWEB: All right. So it's almost a quid pro quo. You put up your casino, you make the big bucks there, but make sure that you have some tourism infrastructure too?

STEVEN JOFFE: Ja, and I think it's been a very sensible approach on the part of our government, and I think it's worked.

MONEYWEB: Of course you would, because you're in the industry. You guys have got a R5bn company now, from scratch. Didn't take you very long to get there.

STEVEN JOFFE: I think it's R7bn.

MONEYWEB: Well, according to our market cap, it's R5.5bn. But you've got new shares you're issuing as well. All right, a R7bm company from scratch, in what period?

STEVEN JOFFE: Seven years.

MONEYWEB: David?

DAVID SHAPIRO: It's a lot better than mining. Pay back a lot quicker, even.

MONEYWEB: But it's also interesting, in Ernie Jobber's results they were talking about how much tax that they are paying - there is a special gambling tax. What is it in Gold Reef in your case?

STEVEN JOFFE: It's 21% of our revenue off the top, post to tax, and then we pay normal corporate tax at the bottom.

MONEYWEB: So now you know why the government is so keen on having more casinos, or having the casinos profitable, I guess.

STEVEN JOFFE: Ja, I think it makes a lot of sense.

MONEYWEB: Just having a look at the structure, the way that you've built this R7bn company in seven years, to start off with, applying for licences, you went in with black partners who had big stakes in the individual licences - and you've got some really nice ones around the country. Golden Horse, which is in Pietermaritzburg, Mykonos on the West Coast, the Garden Route in Mosel Bay, that's done very well. Then the Gold Fields casino, which I would like to get back to in a moment, and of course now Silverstar. So you've got a good balance, most of it coming still from Gold Reef. That decision, though, has been changed. Instead of the partners owning stakes in the underlying casinos, you are now flipping that up so that they would own over 25% of Gold Reef itself, the top company. Why didn't you do that from the beginning?

STEVEN JOFFE: It was very difficult to do at the beginning, because the local empowerment was a critical thing in getting the licences. So we had to built local consortiums and it wasn't possible to make a national consortium with such a substantial stake at that point in time.

MONEYWEB: But then aren't you defeating the object, because the guys who were in the Garden Route casino are now going to get Gold Reef shares which they could sell on the JSE at any point in time, and Garden Route Casino will be wholly owned by a Jo'burg company.

STEVEN JOFFE: Ah, but they can't sell at any point in time. We've asked our empowerment shareholders to keep their shares within the pool for three years.

MONEYWEB: So they have to keep it for three years?

STEVEN JOFFE: They have to keep it for three years.

MONEYWEB: And after three years?

STEVEN JOFFE: And after a further seven years, which makes a total of 10 years, they have to sell to an empowerment shareholders. So we've tried to secure empowerment shareholding for the foreseeable future.

MONEYWEB: All right, so for 10 years you are going to be sorted as far as empowerment is concerned?

STEVEN JOFFE: Ja. The challenge, as we grow, is to find new partners to grow with us.

MONEYWEB: And talking about growing, Peermont Global are starting a new casino in Bethlehem. You've got the Gold Fields casino, which is presumably just around the corner. And according to your information, you made a profit there of R45m in this last financial year. Is that accurate at Gold Fields - EBITDA?

STEVEN JOFFE: EBITDA, yes.

MONEYWEB: Now top-line profit, and the total investment there is only R102m.

STEVEN JOFFE: We've already made a significant investment. This is just re-furbishing the current building that ...

MONEYWEB: What has your total investment been in that casino?

STEVEN JOFFE: It's probably around R300m.

MONEYWEB: All right. So 45 - I thought this is a great business; get your money back in two years. Not quite that juicy. And the Bethlehem casino - do you think that that might affect you?

STEVEN JOFFE: No, it won't affect us at all.

MONEYWEB: Far enough away?

STEVEN JOFFE: Yes.

MONEYWEB: And the other story that comes out of these results, and in the Peermont Global results, is that your gaming revenue, your gambling income, was up 32% - both yours and Peermont Global. Now that's an amazing figure, 32% in a year when the inflation is like 4 or 5%, and even consumer spending is less than 10%. What do you put that down to?

STEVEN JOFFE: Firstly, there are some accounting issues that have just got to be spoken about right off the cuff. We are not comparing like with like. In both cases, I think there have been some acquisitions that have influenced that number. But I think if you strip out those acquisitions, you will still see very good growth. And I still think there are a lot of people who are starting to really enjoy the product of gambling, and we are just not seeing any let-down at the moment.

MONEYWEB: Of course they're enjoying it, Steven. It's nice to gamble, as long as you gamble within limits. What are you guys enjoying to ensure that it doesn't get out of hand for people?

STEVEN JOFFE: Oh, as an industry we've got the National Responsible Gambling Programme. It's a very well-run, well-conceptualised programme, run by professionals, and we offer counselling and interventions if we see anyone that's acting in an irresponsible fashion.

MONEYWEB: I was at Sun City last night. I was at a conference, not to gamble. I was at a conference this morning with anaesthetists - no joke, David, please, about falling asleep, they were wide awake! -  and I walked past one of the areas there and I saw this little kid, he must have been six, sitting all on his own in a room being looked after. I presume that his parents were out there gambling, and this was quite late, half-past nine, nine-fifteen. And wherever you go to casinos, you see this. Surely that's a reputational risk for you?

STEVEN JOFFE: It is, and we really try and discourage that sort of behaviour. But you know, there are no easy answers, and it's much harder to deal with the kid that's left at home locked in a room than to deal with a kid that's left on site that we can properly look after.

MONEYWEB: You've done your homework on this one, hey?

STEVEN JOFFE: I try to do my homework.

MONEYWEB: Of course you have, Steven. Just to look forward on this company, because it really is well positioned, Silverstar Casino is going to be a big investment, over a billion rand - R1.2bn investment as you say - in your commentary to the results today. That's going to push your borrowings to the kind of level that one's seeing at Peermont Global which, for those who like the details, [means] over 100% gearing. If interest rates go up, it must be a risk.

STEVEN JOFFE: Yes, I think you're right. But there are a few things to say. With the increase in our borrowings comes an increase in our EBITDA. If I look at our borrowings to our EBITDA, they are a tiny proportion. If I look at some private ....

MONEYWEB: In other words, your profits, EBITDA being profit before depreciation - cash.

STEVEN JOFFE: Our cash profit, I mean we can pay off this debt very, very quickly. It's nowhere near the levels that you can see on some of these private-equity deals. We can offer up to eight times our EBITDA. Now if you reflect forward to what you suspect Silverstar might do, you will see what I'm saying - it's really a low and undemanding ratio. So I don't believe we have any gearing risk at all. And the one thing I've learnt - we've paid our debt almost too fast, and I'm going to take my time to reduce this desk now. I don't want to rush it down. Gearing in our business is a good thing.

MONEYWEB: How about dividends? You haven't yet declared a dividend for this year.

STEVEN JOFFE: Our empowerment partners that are coming into a company subject to registry approval will rank for dividends. So we couldn't declare them, we wouldn't want to declare them until they're there, and we'll give the market more detail as soon as that happens.

MONEYWEB: Well, it's a fabulous story - R7bn in seven years, and David Shapiro, it's one that you've probably got to stay with.

DAVID SHAPIRO: You've got to because, first of all, the casinos make a lot more than the punters. There are huge margins. The spending continues and, for those with an appetite for investing in these kind of investments, you are going to make money. And look, they are also very well run - let's not take it away from the people who are running these casinos. Very good management and responsible management as well.

MONEYWEB: Just before we go, I did promise to touch on the Theme Park, the Gold Reef Theme Park.

STEVEN JOFFE: You couldn't forget, could you?

MONEYWEB: Well, you know - being in the media. But you've invested heavily in this as well. You actually are looking way past the negative publicity that you had - R53m that you've spent on it. I presume a whole lot of new rides and new attractions coming in from April this year. But that court action with M-Net - how did that affect you?

STEVEN JOFFE: It really decimated our results for about 18 months, but I don't want to harp on that. I tell you, we've turned the corner and things are looking great and I think it's partly Jo'burg's pre-eminent tourist attraction, something we are incredibly proud of, something we are going to fight hard to preserve, and we've invested an incredible amount of time to maintain our reputation.

MONEYWEB: And your court case with M-Net - what are suing them for?

STEVEN JOFFE: We are suing them basically for putting out the wrong information. We are suing them for putting out information that wasn't well researched. And we are suing them for putting out statements that could only be made by structural engineers in a haphazard manner.

MONEYWEB: And how much money is at stake here?

STEVEN JOFFE: Probably around R60m.

MONEYWEB: Steven Joffe, chief executive of Gold Reef Resorts - a growth story, a growth story par excellence, and one that David Shapiro smiles at when he has a look. But you don't have them in your portfolio, do you, Dave?

DAVID SHAPIRO: The only reason is that I went for more the hospitality ones. I couldn't quite go to the gambling yet, but I will go there.

MONEYWEB: Steven, before you go, why aren't you guys in online gaming, online gambling?

STEVEN JOFFE: South Africa is just about to regulate it. We wouldn't enter before - and I am sure we will enter as soon as it is regulated.

MONEYWEB: But Piggs Peak are all over the Internet.

STEVEN JOFFE: Ja, Piggs Peak could be in a court case with the Gauteng Gaming Board. Because we are a licensed operator here, we would never take a Swazi jurisdiction and operate illegally effectively in South Africa.

MONEYWEB: Isn't that a big potential growth area for you, once it is regulated?

STEVEN JOFFE: I think the clamp-down in the United States mean it's not going to be a big area, but it is an area.

MONEYWEB: And not a threat to your existing brick and mortar?

STEVEN JOFFE: No, there's nothing like looking the dealer in the eyes and hearing your friends chirp, and calling the cards.

MONEYWEB: All right. So online gaming is going to be part of your future growth, but not something that could hurt.

STEVEN JOFFE: No, I don't think so.

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