SIMON BROWN: I’m chatting now with Mia Kruger from Kruger international. Mia, I appreciate the early morning. We saw updates yesterday [from] Anglo Platinum (Amplats) and Kumba, both of them talking around production as well, but expecting earnings to take quite a hit. My sense is there were some production issues and the like, but we’re going to see this from a lot of miners coming forward, simply because the first half of 2021 was a knockout record period for the miners – and they are not going to sustain it. They might have a great first half of this year, but it’s not going to be as great as last year.
MIA KRUGER: Absolutely. Good morning, Simon. You hit it on the head there, because the fact is you can only sell what you bring out of the ground at the market rate. And even with Kumba selling their iron ore at a slightly higher rate due to the fact that it’s such a high grade of iron ore, [it is] still affected very strongly by the downturn in the commodity prices over the last year.
If we look at the commodity prices, which is the main driver really here for these earnings, of course they’ve been softened by a bit of a weakening in the rand that we’ve seen as well. The iron ore price is down over 50% over the last year, with the platinum group metals down by give or take 30%, whichever you look at all these companies have been severely affected by a lower selling price.
Then, as you mentioned, particularly in these two companies that we heard from yesterday, Kumba mentioned – and we actually knew about this prior to the results – that they had a really, really tough first quarter weather-wise. They were impacted by severe rain in the Northern Cape that was unprecedented. They couldn’t produce as much as they wanted. Their production I think was down about 14% in the first quarter compared to the previous year. So, despite the fact that we had lower prices, we had a weaker rand, which helped slightly, but unfortunately production numbers were down too.
The full-year expectations sort of remain in line. But I think the trend, as you say, is mostly driven by a lower commodity price, and that will affect all these miners coming out with their numbers for this year.
SIMON BROWN: And there are lower commodity prices, but [with] iron ore at around $100/tonne, even palladium at around $1 900, gold at $1 700/tonne, these are all levels at which the miners are still well profitable.
MIA KRUGER: That is the point. So when we consider it out just a bit longer than this 12 months that we are looking at now, we all knew that with prices coming down it would affect these companies’ earnings for this 12 months. But the reality is that we are sitting with a bit of a shortage when it comes to the commodities globally. If we can look past this current six months’ softness in the market demand – especially out of China, where they had severe lockdowns due to Covid restrictions, that really impacted the demand and made it much lower than we anticipated initially – but looking out at a little further, most of these commodities will be in short supply in the coming years, and that will most definitely have an impact on the prices of these commodities going forward.
So there are still various opinions out there that commodity prices could benefit as the Chinese economy starts to implement all these infrastructure bills that they are talking about to reach their economic goals for the rest of the year.
Also in the US, if we look past the inflation problem, and we look past the rate hikes, we know that the Americans are planning a big infrastructure spend to boost the economy over a longer period, and that will also benefit the commodity price.
And then of course what you and I have spoken about at length is the fact that the renewable energy, battery technology and going into a sustainable economy going forward will also benefit these commodities, as these commodities will be in larger demand due to the fact that batteries mostly need more platinum, more palladium – and that will mostly benefit the economy then.
So [for] these companies it is a bit of a longer game, but they have come under pressure. The prices are down, Kumba down by close to 40% over the last year, [Amplats] down about 30%. So very much in line with what we’ve seen from the commodity prices if you take the softening in the rand into account as well.
SIMON BROWN: Yes. Tough short term, but medium- to longer term that story remains. We also saw a Vodacom update yesterday; sort of single-digit growth for the quarter across the board. That’s kind of standard for Vodacom. They are a fairly mature telco in truth.
MIA KRUGER: That’s right. They tick forward and they tick on. The big thing is they’re still making money, they’re still growing their earnings. It’s sort of you know what to expect from Vodacom, and that’s really what came out in the results as well for me.
They did also talk about some exciting parts that they’re focusing on – fintech. Not much really in terms of bottom line support there, but it’s the trend that we are seeing – even with MTN and with other telcos going forward. They really focus on all the value-adds. They’ve got a lot of clients that they can leverage off, various pricing points or various sort of economic ventures in line with what they can offer these numbers of people that they already support on their networks. That really leads to exciting opportunities, especially in a continent like Africa, where most people bypassed the landline and went straight to mobile phones, and where the growth in mobile-phone uptake is still so large. So that’s also one of the benefits for Vodacom – and MTN as well – that we see in Africa.
So all in all, I think a decent set of results, but nothing spectacular. And that’s sort of what we’ve come to expect of these companies over the last couple of years.
SIMON BROWN: Yes, ticking along. They’ve got the Super App, they’ve got lots of, as you say, fintech and the like there. They’re never going to shoot the lights out but, you know what, there’s a space for that in a portfolio.
Mia Kruger at Kruger International, I appreciate the early morning.
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Listen: Peter Major of Modern Corporate Solutions shares his thoughts on Kumba and Amplats’s second-quarter production updates (Read transcript)