It’s time for hard rock at Copper 360 (JSE: CPR)

Someone fetch the guitars!

Copper 360 is in the process of developing the Rietberg Mine. For the first time in 42 years, there has been an on-ore blast at the mine. There’s going to be more of this, as development at Rietberg Mine will continue over the next 9 months.

I’m certainly no geologist, so I can only repeat the message that management has driven home here: this moves Copper 360 past the “historically unpredictable broken and transitional rock” to “structured hard rock” – and no, this has nothing to do with a musical journey across the decades. Instead, it has to do with the certainty with which Copper 360 can estimate the grade and other characteristics, as harder rock has higher in-situ copper grades.

Sappi had a strong quarter (JSE: SAP)

Especially when you compare it to the prior year

Sappi has released results for the first quarter of the financial year. This covers the three months to December 2024. The improvement vs. Q1 in the prior year is remarkable, with a 7% increase in revenue and a 56% jump in adjusted EBITDA. That was enough to swing from a loss of $126 million to a profit of $70 million!

They attribute this to a broad range of positive factors, ranging from selling prices and sales volumes through to cost savings. They’ve had to struggle through a difficult global macroeconomic backdrop that has seen much disruption to segments of the paper industry in regions like Europe. A number of these challenges are still there, but Sappi’s willingness to act has ensured that the group can still succeed.

The metric that went the wrong way year-on-year was net debt, up 16%. This was due to higher capital expenditure (attributed to the Somerset Mill) and a working capital outflow based on timing of debtor receipts and an inventory build ahead of the Somerset Mill PM2 outage scheduled for Q2. One of the offsetting factors was the receipt of proceeds from the sale of Lanaken Mill. It’s worth noting that a quarter-on-quarter view shows that net debt decreased over three months when translated into dollars.

Prepare yourself for a second quarter that isn’t as strong as this quarter. Aside from external pressures ranging from a seasonal slowdown in China through to ongoing weak markets in Europe and of course tariff uncertainties, there’s also the planned work at Somerset Mill PM2 that will see it shut for an expected 70 days. Ramp-up of the converted facility will see more sales to the lower margin food service market, so that’s also going to impact the numbers. They expect a $21 million impact just from Somerset Mill.

There are other maintenance shuts planned for the quarter as well. Notably, these happened in Q1 last year, so this impacts year-on-year comparability, especially when they are expected to have a negative impact of $45 million!

On top of all this, they have raised capital expenditure expectations for the year. Along with the warnings around the second quarter, this would’ve contributed to the share price closing 4.8% lower despite the strong year-on-year view. Sappi is now flat over 12 months. You really don’t get much in the way of long-term returns in this sector beyond the dividend, so I see it as more of a trading stock than an investment stock.

As you would expect, Sasol’s earnings are down (JSE: SOL)

Oil prices, margins and sales volumes all went the wrong way

Sasol’s most recent production update gave us a strong clue that earnings weren’t going to be a story of joy and happiness. The market braced itself with a major sell-off, although we now find ourselves in a situation where Sasol is basically flat year-to-date!

Market volatility and noise aside, Sasol has now released a trading statement for the six months to December 2024 that confirms the pressure on profits. Adjusted EBITDA is expected to be between 11% and 22% lower, while headline earnings per share (HEPS) is down by between 26% and 36%. This puts interim HEPS at between R6.00 and R8.00. The current share price is just above R88.

There are a few reasons for the drop, with a decrease in sales volumes obviously not helping in the slightest. Sasol also suffered from lower Brent Crude oil prices and a “significant” decline in refining margins. A mitigating factor was an increase in the average chemicals basket price, as well as Sasol’s initiatives around costs and capital expenditure.

Still, it sends a message about the troubles at Sasol that there was another R6.2 billion worth of impairments in this period. That’s even worse than R5.8 billion in the comparable period. The major contributor was capitalised costs of R5.6 billion at Secunda and Sasolburg, all of which were impaired to take the value of that business back down to zero on the balance sheet.

These impairments don’t impact HEPS but they do impact Earnings Per Share (EPS). One of the biggest differences between HEPS and EPS is that the former strips out the impact of impairments (and a few other things). That’s why EPS fell by between 47% and 61%, a far more severe drop than in HEPS, despite impairments being in the prior and current periods.

Sea Harvest’s adjusted HEPS has moved lower (JSE: SHG)

And in this case, the adjusted number is the right one

At first, I got quite a shock when I saw that Sea Harvest’s HEPS for the year ended December 2024 would be down by between 42% and 47%. The very next paragraph in the announcement explains it though, as there was a once-off gain included in HEPS in the comparable period. Although most once-offs are removed, there are some that don’t meet the definition for HEPS.

To avoid skewing the numbers, companies then report adjusted HEPS, as is the case here. On that metric, Sea Harvest experienced a decrease of 2% to 7%, which suggests a range of 61.2 cents and 64.5 cents. That’s a lot more reasonable.

Underneath all this, we find 7% revenue growth in the South African hake business despite low catch rates. The pelagics and dairy segments put in a strong performance, but an oversupply of prawns impacted pricing – talk about a high quality problem for consumers! Other issues included reduced demand based on economic pressure in China, which in turn impacted abalone pricing.

And you don’t have to be a fishing expert to understand this next source of pressure: high interest rates and levels of debt. The bankers get to eat at the table before shareholders do.

The share price closed 4.9% lower and is now only slightly above the 52-week low.

Sirius Real Estate has announced yet another acquisition (JSE: SRE)

As I wrote yesterday, you can expect to see more of these!

Even though the ink is barely dry on the first SENS announcement this week that dealt with the acquisition of Reinsberg business park, Sirius Real Estate is out with news of another acquisition. This second transaction is smaller and is in the other region of interest: the UK.

Unlike the Reinsberg deal, the Earl Mill business park in Oldham in the UK has 95% occupancy. Despite this, they managed to buy on the asset on a huge net initial yield of 13.9%. Remember, the higher the yield, the cheaper the asset!

I can only think that the property needs a fair bit of capex or that the lease is expiring soon, as that acquisition price doesn’t make sense in any other context. The announcement isn’t explicit on this though, with only a passing mention of future value creation opportunities linked to vacant space, environmental ratings and future development.

When you’re buying on a yield of 13.9%, you don’t need to worry about future value creation. The deal itself is creating value!

It’s just a pity that the deal is only sized at £5.7 million, which makes it much smaller than the €20.4 million Reinsberg deal that was at a far less lucrative yield.

Nibbles:

• Director dealings:
  • An entity associated with Michiel le Roux, co-founder of Capitec (JSE: CPI), has added another 100,000 Capitec shares to a hedging transaction that goes back to August 2021. The original transaction covered 330,000 shares and there was a further transaction in November 2024 for 95,000 shares. The new structure includes put options at strike prices of R2,660 and R2,811 per share (depending on which tranche) and call options at R3,643 (it sounds like that call option strike now applies to all the shares from November 2024 and this tranche). For reference, the current spot price is R3,118.

• Although I usually don’t comment on changes to stakes held by asset management firms in listed companies, I think there’s enough noise around Renergen (JSE: REN) to warrant a mention that Mazi Asset Management has upped its stake from 9.21% to 13.53%. Mazi are either going to look like heroes or fools here, as this is about as risky as it gets right now. Hopefully it will be the former!

• It’s not absolutely clear at this stage whether Emira Property (JSE: EMI) will still going ahead with the second tranche of a deal with DL Invest Group in Poland. The date for delivery of the subscription notice has been pushed out to 28 March 2025, failing which it will lapse. To get that done, Emira needs to release a Category 1 circular, which requires a lot of financial information. Emira is trying to finalise the circular and meet the deadline, so for now at least there’s still a willingness from the company to push through. This is also of relevance for Castleview (JSE: CVW) shareholders, as Castleview holds 59.3% in Emira.

• In very sad news from Harmony (JSE: HAR), there have been two separate loss-of-life incidents leading to five employees passing away. Two were involved in a mining incident at Doornkop Mine in Soweto and three in a fall of ground incident at Joel Mine in the Free State. These are obviously unrelated incidents and they show how much danger there still is in mining.

• Sebata Holdings (JSE: SEB) finally released earnings for the six months to September. Revenue was R84 million and the headline loss per share was 0.13 cents, which is better than the loss of 9.91 cents in the comparable period.

• There’s been a substantial change to the shareholder register at South Ocean Holdings (JSE: SOH). Metallic City International Limited sold its 20.19% shareholding to SAF Metal Holdings LLC, a US company. Will there be more action here? Only time will tell.

• Oando (JSE: OAO) is executing what sounds like a scrip distribution based on one new share for every twelve held. There are two tranches, the first of which is this month.