Time for some gold?

Chantal Marx of FNB Wealth and Investments discussed Sibanye-Stillwater and whether it’s time for some gold. “The fear is right now that [Sibanye] are starting to invest aggressively right at a time when we’re probably going to see some pressure coming through on commodity prices”.
Image: Moneyweb

SIMON BROWN: I’m chatting now with Chantal Marx, head of research at FNB Wealth and Investments. Chantal, I appreciate the early morning time. Sibanye-Stillwater is one of the concerns in the mining space as they start to do some big deals with all the money that they are receiving. We haven’t seen much of it yet, but Sibanye-Stillwater announced yesterday that they are going to be buying some green-energy assets in Brazil. The Wall Street Journal says those are probably worth about a billion dollars, about 10% of their market cap. Should we be concerned? I tweeted on Twitter and a lot of folks said to me, nope, you’ve got to trust Neal Froneman although the market sent the stock off 5.1%.

CHANTAL MARX: Yeah. Sibanye is one of the more aggressive allocators of capital, if I can put it that way. But in general it’s been quite successful, notwithstanding having had quite a bit of help from very high commodity prices and flying PGM prices over the last few years.

But remember, prior to the PGM rally, there was a lot of nervousness around a very geared balance sheet and the fact that Sibanye was struggling to make ends meet at one point in time.

I think market participants’ memories are quite short, but it seems as if miners’ memories are quite short as well, or they just can’t help themselves. What tends to happen is you have high commodity prices, demand is booming, but you’re not necessarily investing in new capacity because you’ve got this memory of 2016 – where almost everyone went bankrupt – and you are cash-flush.

Read: Sibanye buys Brazil mines in R14.7bn battery metals push

Then at one point you start thinking, well, is my business going to be sustainable if I’m not investing for the future? Then one has to start making plans. Usually, unfortunately, that coincides with a global growth slowdown and a reduction in demand for commodities. All markets are forward-looking and they are seeing this supply coming online in 3/4/5 years’ time, and that places pressure on commodity prices again. That is really where the fear is right now – that these guys are starting to invest aggressively right at a time when we’re probably going to see some pressure coming through on commodity prices.

SIMON BROWN: It doesn’t matter. This deal is largely de-risked in that this is not exploration. Some of the mines are actually producing, they’re open-pit, they are near ports, they’ve got labour, they’ve got all the bits and are also buying from private equity, so maybe not overpaying. A billion dollars – that’s a year’s profit for Sibanye.

CHANTAL MARX: Yeah. In the context of Sibanye, this isn’t that big if this was the only thing that they were doing. But they’re also going very aggressively into the lithium space. They’ve bought up some JVs [joint ventures] in lithium mines in the US as well as in, I think, Finland or Sweden. They’ve been doing some other stuff as well. They’re also investing quite a bit in capacity expansion in South Africa in the PGM space.

There’s a lot going on for Sibanye at the moment. I don’t hate these new projects because I really do think that you’re pivoting your portfolio towards technologies of the future. Similarly BHP is going into potash, which I think is pretty great, longer term. It’s just a function of whether you are overpaying right now because commodity prices are higher if you’re buying producing assets, or whether you are going to have cost overruns and time overruns when it comes to exploration and development projects.

SIMON BROWN: And I suppose the answer is we’ll find out in time, unfortunately.

A quick last question. Lots of talk around inflation. We’ve seen gold moving a bit higher. Last year everyone was saying let’s have a bit of gold. It is time for some gold – there are concerns around inflation – either a miner or perhaps the metal itself?

CHANTAL MARX: It’s quite an interesting one. I was looking at AngloGold yesterday and it has already rallied 20%. It seems as if the market is having the exact same idea, but I think that there’s quite a lot more if the expectation is that gold prices will start moving upwards. Maybe not immediately, but probably into next year as the initial recovery runs out of steam and you are going to be looking at safe-haven assets again. The market’s probably going to price that forward. As we mentioned earlier, they’re going to see that gold prices are probably going to move up next year. Gold miners might start rallying – 20% isn’t much if you’re down 50% – so perhaps it is time to start looking. I think the rule of thumb here is look at the good capital allocators, the guys who are low-cost producers with decent track records; that’s probably where you’re going to have the most success.

SIMON BROWN: And for a gold miner 20% is often just mundane.

Chantal Marx, head of research at FNB Wealth and Investment, I appreciate the time.

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Another knock down at the US open today. Friday close is also good for the same. Previously it was admitted by Chris Powell that the western central banks were using two NY (investment) banks as agents for the manipulation. Clearly a diversionary excuse. The US treasury does not require foreign assistance to control (suppress) such a relatively small market.

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