Sibanye pulls out of R15bn Brazilian mines deal

The miner wants ‘to get into battery metals and copper in particular’, says Sanlam Private Wealth director Greg Katzenellenbogen, who ‘remains very bullish on the commodity space’.

SIMON BROWN: I’m chatting now with Greg Katzenellenbogen, director at Sanlam Private Wealth. Greg, I really appreciate your time this evening, and I always appreciate your insights. I want to quickly touch first on Sibanye Stillwater. Last year they announced a deal, a Brazilian deal of about $1 billion, R15 billion – an acquisition they were going to do. They have now cancelled it owing to a geotechnical event. I’ve been searching and I can’t find it, but that’s not the important point.

In one sense they save a billion dollars. In the other sense, this actually looked like not a bad deal for Sibanye Stillwater.

GREG KATZENELLENBOGEN: It would’ve been. They want to get into battery metals and copper in particular. So it was. But at the time of the deal there were some commentators who mentioned that some of the bigger other mining groups had looked at this and walked away. I don’t know what exactly the geotechnical event is, but I suppose that they did their due diligence. I have no idea. Maybe the grades are not what they thought, maybe the life [of mine] is not as long as they thought.

Without them telling us anything further, which I don’t think we will get, they’ve walked away from that. But I don’t think it’s a bad thing because they might have been overpaying for it somewhat.

SIMON BROWN: I remember at that particular time Neal Froneman from Sibanye Stillwater, the CEO, announced a couple of deals, and I was starting to think it was getting a little frenzied. That said, they’re interested in the battery space. Your sense? I think Neal Froneman is probably going to go and find another deal, rather than take that billion dollars and return it to shareholders.

GREG KATZENELLENBOGEN: Oh, no. I think he’s a consummate deal maker, and he’s done exceptionally well. He’s somebody you want to follow in the mining stocks. His going into Stillwater in America was perfectly timed, so anyone who’s followed him basically has made money. He’s got a track record. But anyway, it’s possible to overpay so we would have to see.

But I do believe the money will be earmarked for a deal somewhere. They are determined to get into these metals of the future – or the battery metals, as you call them.

SIMON BROWN: Yeah, and they’ve got some lithium deals as well. There was also some copper lurking in that.

If we look more broadly, today was quite an aggressive selling day. We saw the resources index off 4.6%. I was looking at the Resi chart however, the Resi 10, and it certainly is down. But it’s not horribly so. It’s kind of back to where it was earlier this month or perhaps August. If we go back all time, it’s kind of trading only a little bit off the 2008 highs. What’s your approach been to the selloff, because commodity prices haven’t been coming back?

GREG KATZENELLENBOGEN: Well, despite all that, if you look at the longer term and take a more reasonable view, then you can say, well, it takes some comfort. But when you are involved in the market on a day-to-day basis, let me tell you today was a really lousy day in the resource space. It was pretty tough. But I take the point that you make.

I think that we haven’t even begun to see the benefit of commodities and that the base metals supply is constrained. We’ve seen, if you look at aluminium and zinc and those things, with China’s electricity problems and that, and Beijing with the Olympics coming up there – and Europe’s got power problems – I think Europe produces something like 12% of aluminium, so that is a problem. Those things are constrained and you can’t have the green revolution without base metals. If power is going to be a problem these things are going to cost a lot more.

So I still think that the outlook for base metals is doing well. We are starting to see where, with a bit of luck, the pandemic is going to be in the rear-view mirror soon, probably be more an endemic virus that you’re starting to see in countries like the UK and soon [to be] followed by the EU and the US. You will probably find the virus becomes endemic, and we’ll deal with it like we have dealt with the serious flu; that is going to leash a pent-up demand for all goods and services, and commodities will be well placed for that.

The fact is that the balance sheets have been well looked after by the mining companies. Don’t forget in Chile and Peru now you have sort of left-wing governments that are talking about resource taxes and things like that. It’s always a disincentive to further production. So if production is not going to increase significantly, that could put a further fire under commodities going forward.

So I remain very bullish on the commodity space.

SIMON BROWN: Is there a preferred space, for example gold? We’ve got rising inflation, gold trading at $1835/1890 an ounce as we chat. PGMs have lifted their head. Even energy. Oil’s been picking up. You mentioned Europe and the energy issues there. Have you got [preferences]or is it like you can almost just go for diversified?

GREG KATZENELLENBOGEN: Well, yeah, the big diversified miners right across the resource space. Bit I do have exposure to gold and I believe that you should have some exposure to gold.

I’ve been reading for some time that gold was a relic and Bitcoin was the new hedge for your portfolios. Well, that hasn’t quite worked out pretty well. So, with the price of Bitcoin halving while gold hasn’t really done much – it’s still kept around that $1800 mark – I do believe that we will see, probably this year, maybe next year as inflation rears its head, that people will then decide that gold is the one true hedge against inflation. I believe that it should form a part of somebody’s portfolio and [one] should have exposure to gold.

But if you’re going to go into resources, the diversified miners are the best ones, [those] which give you exposure across the board to things like copper and iron ore, nickel, things like that. But I use gold primarily as a hedge against bad times.

After such a tough day today I expected goal to do something, but it stayed pretty flat. But I think it’s when we don’t expect it to move, it will, and that’s how these hedges move – when you least expect them to.

SIMON BROWN: In many senses flat was the winning position today. I’m just having a quick short-term look at gold versus Bitcoin. Yes, it’s all about gold.

A quick last question. Obviously we can buy gold coins. We can get the ETFs locally and globally – or is a mine perhaps a better option simply because of that potential leverage effect?

GREG KATZENELLENBOGEN: I think the miners are, because of the leverage to the gold price and that is where you will get AngloGold [having] halved from its previous high; it was over R600/share and it’s now half that price, and I do believe it can go back where it was. If you look at things like Gold Fields or Harmony, they are also quite well geared to the gold price. If you want to be overseas, you can look at Barrick or Newmont – or even there’s an ETF called the Van Eck Gold Vectors, something along those lines, that give you exposure to a lot of junior gold miners which, when the price moves, should do well for investors.

But I’m not recommending that. I’m just saying there are a number of ways to play gold – but I stick to the miners primarily for exposure.

SIMON BROWN: Now overlay the gold miners on the gold price, and they’ve been coming off markedly – and gold has not. Certainly there’s been a disconnect there.

We’ll leave it there. Greg Katzenellenbogen, director at Sanlam Private Wealth, I always appreciate your insights.

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