Some gems and that elusive pot of gold
In August, Creamer Media’s Mining Weekly reported that:
• During the first half of this year, LSE-listed Gem Diamonds recovered a record ten diamonds greater than 100 ct at its Letseng mine, in Lesotho.
Another such gem was recovered in July, resulting in the highest number of above-100 ct diamond recoveries in a single year.
• Diamcor Mining has recovered six special rough diamonds at its Krone-Endora project, in Limpopo. They include a high-quality 18.45 ct gem octahedron rough diamond, two gem-quality rough diamonds (18.56 ct and 14.71 ct) and three non gem-quality diamonds ( 21.92 ct, 17.32 ct and 15.84 ct).
• TSX-listed Lucara Diamonds’ Karowe mine in Botswana delivered 253 diamonds larger than 10.8 ct during the second quarter, ended June 30 – the highest number of specials recovered, by quarter, since production started at Karowe.
The mine processed a total of 700,000 tons of ore and 4.4 million tons of waste, during the quarter under review.
From these brief reports I learned a great deal. Firstly, large, even huge diamonds are not nearly as rare as we once were led to believe; they are in fact, well, common. Secondly, the last also reminds me of the vast amounts of earth and rocks that are blasted and moved by thousands of exploited mineworkers flattening mountains, scarring the landscape and poisoning rivers – for what? Chunks of quite pretty shiny stones whose only real use is to decorate the regalia of royalty, or for mafia bosses to shift value across borders undetected, or to be buried once more – in the safes of the foolish rich.
Yes, I know diamonds cater for the vanity of a great many women – but, let’s face it, most could not tell the difference between a diamond and a beautifully cut glass crystal.
In short, diamond mining is so costly in human effort and to the environment that, in this day and age, how can any sane person go along with it, let alone invest in it?
Finally, there was one diamond mining report in Mining Weekly in which I found something of value: good, and telling, advice.
It read: “AIM-listed [listed on the Alternative Investment Market of the London Stock Exchange] BlueRock Diamonds has reached an agreement with former CEO Riaan Visser that his application for the liquidation of Kareevlei Mining be removed from the court roll, subject to security being provided for the full amount of his alleged claim of about £230,000 (R4.5m).
“The company has taken this prudent action on the advice of its lawyers because, while the board was confident that, had the hearing proceeded, it would have been successful, it is impossible to be entirely confident of success in this or indeed any other court process,” BlueRock noted in a statement.
Yes, neatly summed up: South Africa’s legal fraternity have reduced our legal system to an expensive high-risk lottery – by at least one member’s prudently honest admission.
From diamonds to gold – the kind that beckons from the other end of the rainbow.
Hard on the heels of those Mining Weekly reports from the diamond mining industry, a statement arrives in my mailbox from Gold Fields Limited, the company that declares at the top of its website: “Our vision is to be the global leader in sustainable gold mining.” Vision being the operative word, as in daydream, fantasy, hallucination, because the reality at Gold Fields’s South Deep mine is quite different, as quickly emerges from the statement they’ve sent me:
Johannesburg, 8 August 2018: Gold Fields Ltd (JSE, NYSE: GFI) advises that basic earnings per share (EPS) for the six months ended 30 June 2018 is expected to be at least 20% lower than the US$0.07 per share reported for the six months ended 30 June 2017.
Noseweek readers would not have been the least surprised. For example see noses192; 194 & 196. In nose196 (February 2016) Barry Sergeant described the “terrible saga of Gold Fields and South Deep” as a powerful symbol of South Africa’s loss of innocence, pointing out that since Nick Holland took the CEO seat in May 2008, Gold Fields’ executives had earned over R700 million “in return for shamelessly spinning a plainly impossible future-production profile for South Deep”. Year after year, with much the same story trotted out each time. There’s a good example in nose202 (“All that glisters…”). By that year (2016) company executives had scored more than a billion rand; Nick Holland personally R200 million.
The latest expected drop in earnings was explained in a further statement issued on 14 August. It read “Gold Fields Ltd (JSE: GFI) (NYSE: GFI) announces a restructuring at its South Deep operation and provides a further trading statement relating to its first half year 2018 results, due for release on Thursday, 16 August 2018:
“South Deep has had a number of operational challenges since Gold Fields acquired it in 2006. The key challenge has been the difficulty in transitioning the mine from one run with a conventional mining mindset and practices to mining with a modern, bulk, mechanised mining approach. South Deep is a complex and unique mine that has faced persistent issues that need to be addressed in a holistic manner which include:
• Rising operating and overhead costs, not aligned with current output levels;
• Consistent failure to meet mining and production targets;
• Unique and complex mining method, long hole stoping mining at 3,000m with attendant challenging … conditions requiring extensive support;
• Extensive infrastructure and support services required to underpin mining activities, which continue to operate sub-optimally… ;
• Poor equipment reliability and productivity impacted by poor maintenance practices and operational conditions;
• The operation is staffed and resourced for a much higher production rate than is currently being achieved; and
• Overall labour productivity is significantly below industry average.”
All this seems aimed at softening up shareholders for yet another annual report with bad news. And – is it possible? – for another rights issue to raise yet more capital for a lost cause? When are shareholders going to vote for calling it a day at South Deep – despite the billions and billions they have been conned into investing over the past decade? Is it a case of institutional investors being so deep in that they can’t turn around and declare a loss so vast they will have difficulty explaining it?
And at what stage is Nick Holland going to grab his last bag of loot and run?
Noseweek’s guess: if he and his shareholders have any sense, soon.
Sell in May and regret the day
In May – appropriately – Business Insider published a report headlined “Why Sell-in-May-and-go-away doesn’t work for SA investors”.
“Sell in May and go away” has long been a popular adage on New York’s Wall Street. There they believe the strategy is a great way to avoid the worst months on the US market. Many market crises seem to happen between May and October.
Since 1926, total returns delivered by the S&P 500 during the May to October period are about half those for the seasonally strong November to April.
However, an analysis of 20 years’ worth of data from the JSE Top 40 index, compiled by Andrew Todd of the investment platform Traders’ Corner, has shown that South African investors on the JSE will have lost money if they sold each May and went away.
On average the index gained almost 2% in the May to October period, more than 37% over the years.
The index rose in the March-Oct period in 14 out of the 20 years.
His conclusion: For investors with a long-term horizon, it is better to ignore the legend and remain invested.
Also remember that you would have to keep transaction costs and capital gains tax in mind if you sell out at the end of April. This could result in even lower returns, cautioned Todd.
All this information would/should not have been news to any major banks, financial managers or stockbrokers who spend their days watching the trading graphs on their screens.
In fact, to the extent that South African fund/asset managers of all kinds may have used the “Sell in May” legend as a reason for selling their clients’ shares in May have, one may safely assume, been using it simply as an excuse to “churn” (buy-sell-buy) shares in order to up their own brokerage and management fee income at their ill-informed client’s expense.
This was clearly the case with Investec Securities Cape Town broker Harry Bell when he sold the entire blue-chip portfolios of his clients Michael and Peggy Schonland, both retired and in their eighties, in May 2013 and again in May 2014, specifically referring to the sell-in-May legend as his reason for selling. They had good reason to be unhappy with the outcome and have since taken their share portfolios elsewhere.
Bell took charge of the Schonlands’ share portfolios in 2012 when their previous brokers, HSBC SA, were bought out by Investec.
On the morning of 15 May 2013 a flood of share sales notices from Investec Securities began arriving in the Schonlands’ email inbox. Without prior notice or their permission, Bell was selling their entire share portfolio: Anglo American, Aspen Pharma, BHP Billiton, British American Tobacco, Richemont, MTN Group, Naspers, RMBHoldings, SA Breweries, Standard Bank, Sasol, AVIAT and Brait.
Responding to the complaint they subsequently lodged with the JSE, Bell wrote: “There was no large pending economic data that I thought might push the markets higher and I therefore felt markets would adopt the usual sell-in-May stance and therefore drift lower.”
Andrew Todd’s JSE data referred to above shows that the JSE index rose 15.8 percent from May to October 2013.
As a result of the sale, Peggy had to pay R104,000 in capital gains tax, and Michael a further R228,163.
Five weeks after selling their shares, Bell went back on the market and bought all the same shares for them again. He did buy one new share: over R1m worth of Kumba – after Investec had itself warned clients of an impending decline in Kumba due to economic woes in China. Kumba’s share price plummeted in the following months, and three years later have still not recovered to the purchase price.
In May 2014 Bell did it again. He sold their entire portfolios without prior warning or their consent. At 4pm on 15 May – after the sales had gone through, he called them and after several minutes of small talk, chirpily slipped in: “I’ve got news for you!”
Over the next six weeks the sold shares appreciated by about R600,000.
The total profit they made on the sale – before tax – was R12,635.
Investec’s brokerage fee on the transactions: R35,514.
Just before they closed their accounts at Investec, Bell called them to suggest he buy a million-worth of Steinhoff shares to add to their portfolio. Can you believe it: their answer was No!
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