SIMON BROWN: I’m chatting now with Gary Booysen, portfolio manager at Rand Swiss. Gary, good morning, I appreciate the time. When I messaged you and said, “Let’s check commodities and what to do with commodity stocks,” you said, ‘Yes, that’s easy”. On Thursday, Friday, they were closing around the lows for the year. What is the view of your team at Rand Swiss? Are African commodity stocks buys or sells, or are they holds – is it depending on which commodities they are?
GARY BOOYSEN: I suppose it’s easy because it’s such a robust sector to talk about. It’s never easy to pick up by sell or hold, especially in this market when you’ve got things like WallStreetBets driving share prices.
If you look at the underlying fundamentals of companies, I would say it does seem like you’re getting pretty reasonable prices and these companies are doing exceptionally well. So if you look at the Bloomberg Commodity Index, we’re up about 31% for the year – and that’s on an average. That includes things like the power complex and softs and grades and all sorts of things.
What we had in August was this little wobble where the market came off to these lows around the twenties, and I think that just speaks to everyone as well.
People are starting to remember that commodity prices are very, very cyclical.
I remember sitting opposite of Diva ……1:34 and he used to say when PEs are lower than commodity stocks, that’s when you sell them. It’s kind of a little bit counter-intuitive because, if you look at what’s going on inside these companies, they’re taking a much more conservative approach.
We can talk about Implats, we can talk about Sibanye. You look for what’s going on inside there. They are returning an enormous amount of cash to shareholders. It’s not just in terms of the dividends which, as you mentioned, impact on Sibanye – they are both ex-dividend tomorrow, so it’s the last day to trade today – but they’ve got enormous share buy-backs in place as well. So the idea that we had, let’s say, a couple of decades ago or a decade-and-a-half ago where commodity prices were high, these guys were just sinking shafts and buying assets and were going absolutely berserk to increase production. It doesn’t seem to be the case this time around. It looks like the management teams are a lot more conservative. What that’s going to do, especially in let’s say the PGM (platinum group metals) space, is it’s going to keep supply a lot tighter than it was in the past.
So it seems to me that the market’s reacting to almost historical price action but, if you actually look at what’s going on inside these companies, I don’t want to say it, but this time it’s different.
SIMON BROWN: I hear what you’re saying there. Certainly, the fundamentals internal to the businesses remain there. We are talking PGMs. The gold stocks – do we just leave gold miners to their own devices?
GARY BOOYSEN: It’s difficult, again … leave stocks to their own devices; it’s probably good advice. Let’s talk about a specific gold stock, which will be Sibanye. The company has changed so much since it was spun off out of Gold Fields, and that’s one of the things that you can do. Even though gold miners do tend to get deeper and more expensive getting gold from the ground, you’ve got incredible management teams here that are going out specifically to change the commodity mix. It’s a big focus of a lot of these miners now, looking at future metals. We know Neal Froneman is looking at things like uranium, using Beatrix West and old Cooke mine dumps, trying to generate a significant uranium output, just based on the fact that uranium prices are going berserk and they expect much more demand from Asian nuclear power plants – not to say that’s where the demand is coming from because, if you look at something like the spot uranium ETF up over 200% at the moment, that really was driven by WallStreetBets; that was driven by speculators just buying into this uranium ETF.
Like I said, markets are always crazy, but if you are backing good management teams that are not irresponsible with shareholder capital, you can really sit back and just relax.
Commodity stocks will be volatile, but when you get big dip-offs like this, for me it seems to be presenting a buying opportunity.
SIMON BROWN: We’ll leave that there. Gary Booysen is a portfolio manager at Rand Swiss.
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