BHP responds to press speculation around Samarco (JSE: BHG)
The terms of a settlement proposal are being considered
BHP felt it necessary to issue a formal response to press speculation in Brazil regarding negotiations between BHP, Vale and the Federal Government of Brazil. At this stage, negotiations are ongoing and no final agreement has been reached on the amount or the terms thereof.
At this stage, it seems that the total settlement amount to the people, communities and environment will be $31.7 billion. Of this, $7.9 billion has already been spent since 2016, a further $18 billion will be spent over 20 years in the form of instalments (an obligation to pay) and the remaining $5.8 billion would take the form of benefits to the affected parties (an obligation to perform).
BHP’s share of this is $15.9 billion, as they are on the hook 50/50 with Vale. BHP reckons that this is roughly in line with the $6.5 billion provision currently on the balance sheet. That looks very off at first blush, but remember that some money has already been spent and a lot of it is payable over 20 years, with the provision reflecting the present value of the obligation.
This doesn’t necessarily bring things to a close even if settlement is reached, as there are still claims in Australia, the Netherlands and the UK, as well as criminal charges.
Capital & Regional releases the circular for the NewRiver scheme of arrangement (JSE: CRP)
This is highly relevant for Growthpoint shareholders as well (JSE: GRT)
After much speculation around whether an offer would finally be on the table, we recently learnt that NewRiver had pulled the trigger on a cash-and-share offer to the shareholders in Capital & Regional. They are structuring it as a scheme of arrangement, which means that sufficient approval by shareholders will lead to the deal being applicable to all shareholders. The alternative is a general offer, which only applies to those who accept the offer.
For each Capital & Regional share, shareholders will receive 31.25 pence in cash and 0.41946 NewRiver shares. This represents a premium of 21% to the 3-month VWAP.
What I was really waiting for in the circular was to see what would happen to shareholders on the South Africa register, as NewRiver isn’t listed on the JSE and has no intention of listing here. The plan is to sell the NewRiver shares to which they are entitled and then pay them the cash. The only way to get around this is to use your foreign allowance to hold shares in NewRiver on the UK register. Either way, the option to hold directly into this portfolio on the local register is not going to be there.
It’s a pity that South African shareholders won’t be able to invest directly in the portfolio on the local market, as the combination of NewRiver and Capital & Regional creates a much larger portfolio that has complementary property assets in the UK. Growthpoint currently holds 69% of Capital & Regional and will vote in favour of the scheme, thereby receiving the mix of cash and shares in the enlarged entity. This means that shareholders in Growthpoint will be able to indirectly participate in the post-deal group in the UK – along with everything else in Growthpoint, of course.
Capital & Regional and NewRiver expect to achieve £7.3 million in cost savings from combining the groups, so it’s not a great time to be in a support role at either fund as those savings have to come from somewhere. I quite enjoyed the reference to £1.1 million in dis-synergies, which basically means additional costs from the deal. This means the net annual saving is £6.2 million. With expected costs for the deal of £2.9 million, this suggests an immediate benefit from the transaction.
Given Growthpoint’s support of the deal, I think it’s very unlikely that it won’t go ahead. Full details can be found in the circular here.
It’s time for tech bingo with 4Sight Holdings – spot the buzzwords! (JSE: 4SI)
But with these results, they can justify it
It’s easy to simply throw all the important buzzwords down on a page, like AI and machine learning. Heck, 4Sight even mentions something called Industry 5.0, which sounds like we skipped the 4th Industrial Revolution altogether.
Revenue for the six months to August jumped by 20.1% and operating profit was up 32.9%, with growth being enjoyed across the business. Unlike many tech companies, gross profit margins seem to be intact, with gross profit up 19.4% and thus reflecting only a 20 basis points decrease to 40.7%.
HEPS has increased by a lovely 35.5% to 5.185 cents, so that’s a great story all round. Despite this, there’s no dividend for the period. Hopefully this will be addressed with full-year results, as there was an interim dividend last year when earnings were quite a bit lower than they are today.
A 100-days letter from the new Prosus / Naspers CEO (JSE: PRX | JSE: NPN)
I really like Fabricio Bloisi’s style
From the very first call to introduce Bloisi to the market, there was something about him that I liked. He’s a proper breath of fresh air at Prosus / Naspers, a group that desperately needed an operator in the top job, rather than an investment banker. Gone are the tight shares and overly smooth appearance of ex-CEO Bob van Dijk. Instead, Bloisi wears a golf shirt and looks like someone you could happily have at your next braai.
This is the difference between someone who made money by building businesses and someone who knows how to manage that most wonderful concept of Other People’s Money.
Here’s the TL;DR of the letter:
- The goal is to double the value of Prosus and that means ambitious targets for the portfolio businesses. The letter includes a note that iFood has hit 100 million orders per month and the new target is therefore 200 million orders per month!
- There’s a huge focus on AI and deploying the technology in the underlying operations.
- The word “profit” appears several times, which I can assure you is an improvement vs. the old narrative – especially for the eCommerce businesses.
- In the first six months of the year, eCommerce generated roughly 3x the adjusted EBIT that it managed in all of 2023!
- There’s an expectation for the underlying investments in India to IPO on that market, which supports my current interest in that market.
- Various asset sales have taken place to improve the portfolio.
The Prosus and Naspers share prices are both up around 34% this year. Bloisi can’t (and wouldn’t) take all the credit for this, as the vastly improved sentiment in China thanks to expected stimulus has helped greatly. Before the stimulus sentiment took hold, each company was up 20% this year – still a solid performance.
South32 maintains annual production guidance (JSE: S32)
It seems like a solid financial start to the year
With an update for the first quarter of the financial year, we now know that South32 is off to a decent start. It’s early days of course, but production guidance has been maintained for all the operations. Highlights include a particularly strong start for aluminium and copper volumes from Sierra Gorda.
In terms of corporate activity, this quarter saw the completion of the sale of Illawarra Metallurgical Coal, with South32 receiving cash proceeds of $964 million. Importantly, further progress made on the construction of the long-life Taylor zinc-lead-silver at Hermosa. It’s also worth highlighting that during the quarter, Hermosa was selected for a $166 million award negotiation from the US Department of Energy.
It can’t all be good, of course. Mining is far too difficult for that. For example, payable zinc equivalent production at Cannington fell by 34%. The trick for these mining groups is to have more good than bad, leading to a decent result overall.
Net debt decreased by $723 million to $39 million, with the proceeds from Illawarra partially going to debt reduction and partially to the capital investment programme.
Workforce Holdings looks set to be the next delisting (JSE: WKF)
Force Holdings wants to take the group private
If you’ve ever wondered what a tightly-held share register looks like, then prepare yourself for this one.
Force Holdings has a 69.33% stake in Workforce Holdings. That’s already a controlling stake obviously, but such a level is not unheard of in a listed context. It’s when you scratch just a little bit deeper that you see the problem, as just three other shareholders plus treasury shares take us to a total of 97.24% of shares that we’ve accounted for across just a handful of shareholders.
Those shareholders have all agreed to come along for the ride into an unlisted structure, so Force Holdings only needs to buy 2.76% of the company to get everyone else out and take it private.
But now here’s the trick: to get it right, only the holders of those 2.76% of shares can vote on the scheme of arrangement. This means that 75% of those shareholders will need to vote in favour, which isn’t so easy to achieve. To entice them to say yes, the offer price is a premium of 17% to the closing price of the shares before the offer came out.
The reason this might work is that there is literally no liquidity in this thing and those shareholders have very little prospect of selling their shares at this price to anyone else. We recently saw a scheme voted down at Bell Equipment by a small group of shareholders, with the difference being that there is still meaningful liquidity in Bell and so those shareholders felt they had different options. This situation feels different, which is why the company already received irrevocable undertakings to vote in favour of the scheme by holders of 32.71% of the voting shares.
Still, there’s a big difference between 32.71% and 75% approval. They will need to work hard to get this scheme over the line, especially with the independent expert report only becoming available once the circular is distributed to shareholders.
Nibbles:
- Director dealings:
- A director of a subsidiary of Attacq (JSE: ATT) sold shares worth R1.18 million. Although it was linked to a share award, the announcement isn’t explicit on whether this was only the taxable portion, so I assume that it wasn’t.
- The spouse of a prescribed officer of WBHO (JSE: WBO) sold shares worth R922.5k.
- A prescribed officer of ADvTECH (JSE: ADH) has sold more shares in the company, this time to the value of R537k.
- A prescribed officer of Thungela (JSE: THA) sold shares in the company worth R113k.
- Pan African Resources (JSE: PAN) has raised R840 million in sustainability-linked notes listed on the JSE. The bookbuild was oversubscribed and the notes were priced at 305 basis points above the reference rate (3-month JIBAR).
- If you are invested in Sygnia (JSE: SYG) and want to stay close to the detail on everything going on there, then be aware that the company has released a circular regarding proposed changes to a share incentive scheme.
