Market watcher: David Shapiro -Sasfin

AngloGold Ashanti’s restructuring rejected by shareholders.

SIKI MGABADELI: As Tumisang said, the rand is struggling today, hitting I think it’s weakest level against the dollar since October 2008, and we know what was happening around that time. It was in the midst of the financial crisis, when we also had all the problems with Eskom at the time. So every reporter is worrying what the President might say tomorrow in the State of the Nation Address about our electricity shortage.
   But also the market – David Shapiro of Sasfin plays with the stuff all day – again looked a little bit listless. David joins us now. What was happening today, David?

DAVID SHAPIRO: A lot of activity. Even though we closed fairly static for the second day in a row, still within the sectors there is a lot of movement to talk about.
   Siki, just on the rand at R11.87 – you are dead right. The last time we saw these levels was at the depth of that financial crisis, a lot of concerns globally. But this seems related to South Africa and it is apparently associated with a energy deal, a renewable energy deal. I can’t get the details because we started to look for worries – was it the electricity crisis, was it something to do with part of the world in the Cape, was something said there that might have scared investors and so on? And even looking as far as the Greeks, because there is still the standoff between the Germans and the Greeks over the bailout package. But it had nothing to do with this. The banks know. So if you want information get hold of someone – you’ve got a lot of contacts, we know that Siki, so just use your charm and try and find out what is happening and how long this is going to last.
   But not only did we weaken against the dollar, but we also weakened against the euro and the pound.

SIKI MGABADELI: R18.05/pound.

DAVID SHAPIRO: It wasn’t sufficient to turn our miners around. It did cushion some of the blow. There are also concerns that oil is now beginning to retreat again. The consensus is that it’s going to say low for longer. I think the Kuwaitis and other Middle East nations have now joined the Saudis in discounting and trying to keep market share. That unnerved the mining markets.
   Then of course, Lonmin was down. Then Glencore announced that it’s going to unbundle its 24% holding in Lonmin. But I see Northam was up very nicely after returning to profitability.
   The miners were also a little mixed. Gold was up, platinum was down, as I said.

SIKI MGABADELI: Just looking at that announcement by Glencore today – what does that mean for Lonmin and its investors? That share price of course down 5% today. What does it mean for the shareholders and where are the suitors for that sort of stake?

DAVID SHAPIRO: This is big, 24% of the company. So it means a massive overhang is going to get into Glencore’s shareholders. Generally most of them might not want it and will just start to dump it – and I think that’s why the share price came under pressure.
   Also, if you’ve got a holding of Glencore, you are going to get a very small holding in Lonmin. As Ivan Glasenberg said, this was a legacy issue, this came out of their holding from Xstrata. They never wanted it. They like to hold metals or minerals, in which they deal. They don’t deal in platinum. So that’s the sense behind it.

SIKI MGABADELI: Sappi also out today, Q1 profit up 33%. They are benefiting from rising paper prices in Europe. I’ve just watched how their shares have performed so far this year. It’s been pretty good, up about 17% so far this year.

DAVID SHAPIRO: We’ve had a good run. I was a little surprised that the market came down, because I think we were expecting more in the first quarter. It’s not generally a good quarter. But it was a very satisfactory result. Going through it, I tried to find out why the share price would have retreated – was there anything really poor in those results? Nothing that you can find on the face of it. Perhaps maybe a little disappointment that the statement that this year will probably be pretty much the same as last year. But for Sappi that’s good. For anybody who has watched Sappi, the fact is that it’s not retreating or going back. Hard to fault. A steady result. As you say, last year there was a turnaround in their fortunes, looking a little bit better, and that increased pricing in Europe also helped their results.

SIKI MGABADELI: AngloGold Ashanti – I see they were saying on the sidelines of the Mining Indaba that they are looking to sell or find a partner for one of their key gold mines. They didn’t name the partner but, I suppose, David, with that debt of, what’s it, $3bn, they need to find some way to plug that.

DAVID SHAPIRO: They came out with their restructuring. It was rejected by shareholders and I suppose they’ve now got to find innovative ways of achieving the same aim. They’ve got to get rid of their debt. The gold price is falling back, costs are going down. It’s a difficult industry to be in. I’m sure you will find something out down there – more than I will find sitting in the studio by myself.

SIKI MGABADELI: [Laughs] Then we are going to be talking to Eric Verner, CEO of Group Five. What did you make of their results?

DAVID SHAPIRO: Difficult conditions. They do have the one problematic deal, which is drawing to an end, which has really hammered them, as you mentioned, in the civils. But even in their building and other areas profits are down and you understand why. It’s a difficult area to be in.
   We also had a trading update from Aveng, which pointed to a similar situation – profits going to be down 60%.
   Wilson Bayly Holmes yesterday as well, pointing that profits will be down. So it’s not an easy time for construction. I would imagine it’s going to be exacerbated by a slowdown in mining and oil projects.

SIKI MGABADELI: All right. And I promise to come back and not leave you all by yourself.

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