The month of June saw some incredible moves in the share prices of resource companies listed on the JSE, suggesting that the commodity recovery continues unabated.
While the Brexit referendum and its inglorious aftermath had a dramatic effect on the gold price, it was two platinum producers that led the way in June with a 37.8% return for the month:
As can be seen from the graph, Tharisa plc just beat Atlatsa Resources to the top spot over the period. The obvious catalyst for the company’s strong move appeared to have been the announcement of interim results on the June 13. Despite revenue falling 30% in US dollar terms, the company delivered improved production of platinum group metals (PGMs) and chrome concentrate, and these levels demonstrated the company had completed its ramp-up and was now achieving steady-state production in line with its guidance. (Tharisa is unusual in that it produces PGMs and chrome concentrate both from the same orebody.) Strong cash flows were supplemented by increased production and lower unit costs.
But the bulk of the move in the share price came before the results, as the company listed on the London Stock Exchange (LSE) on June 8. The purpose of the exercise was not to raise capital, but rather to improve liquidity (volume of shares traded). This certainly appears to have worked.
While there appeared to be no obvious catalyst for the move in the Atlatsa share price during June, the company did report interim results in May, which gave the share a boost, rising from 66c/share to R1.50/share in a matter of days, before giving it all up. Despite a large impairment, investors were cheered by news that the company had entered into a term loan facility with Anglo American Platinum and had begun implementing its operational and financial restructuring plan. The share price is currently trading at R1.24/share.
Investors appeared to climb back into Kumba after taking a breather in May, with a bit of help from the iron ore price which appreciated by almost 10% during the month, moving from $49 to $53/tonne.
Next it was the turn of gold producers, and specifically those with a cost base predominantly not correlated with the rand – AngloGold Ashanti and Gold Fields. AngloGold has now surpassed Sibanye in terms of the highest total returns year-to-date, with a staggering 151% return for the six months ending June.
The company, supported by the buoyant gold price and aggressive cost-cutting, finds itself in a positive feedback loop: as its cash generation improves, it pays down/retires expensive debt, leading to lower financing costs (both nominally and from lower interest rates) which in turn leads to more disposable cash flow. There is a good chance AngloGold could return to paying a dividend later this year.
Year-to-date the best-performing gold producer is DRD Gold (+245%) which just edged out Harmony (+236%).
Turning our attention to the bottom of the table, and Resource Generation suffered the ignominy of being the worst performer for the month. Fresh out of a shareholder dust-up, the company’s board has begun appointing executives to move forward with the construction of the Boikarabelo coal mine, but the market will need a little more convincing.
Wescoal shareholders will be irked by the performance of the share price during the month, despite reporting excellent results for the year ending March. But the 800-pound gorilla in the room is Sasol. While the rand price of oil fell marginally during the month, the real shocker came from the update on the company’s massive Lake Charles Chemical Project. This is nearly half-way to completion, but outgoing CEO David Constable advised the market the project might well run to a cost of $11 billion from its initial price tag of $8.9 billion. That is a potential increase of 24%.
The lack of clarity on a number of issues – like the budgeted capital expenditure for the next financial year and the effect of this on gearing ratios (indebtedness) – was also not well received. The update accompanied a trading statement that had been widely anticipated – revenues for the forthcoming results will be materially affected by the lower oil price. Shareholders were clearly not impressed.