Subscribe

If nothing else, the Gemfields announcement taught me the term annus mirabilis which is the opposite of annus horribilis – another Latin term with a first word that hasn’t aged well.

CEO Sean Gilbertson called 2021 an annus mirabilis – a remarkable or marvellous year – which is a fitting description for a period that has seen a dramatic rise in the share price. There’s even a special dividend of USD20 million to top it all off.

2021 saw record-breaking auction revenues at Kagem Mining in Zamibia (emeralds) and Montepuez Ruby Mining in Mozambique (rubies, just in case that wasn’t obvious). Faberge (a jewellery manufacturer famous for its egg-shaped creations) also achieved record revenues, so 2021 was the group’s best-ever year for revenue.

If you really want to see how the other half lives, you should check out the Faberge website. When timepieces say “price on application” then you know you’re competing with oligarchs and oil barons to buy them.

There are other investments in the group, like a 6.54% stake in Sedibelo Platinum Mines and a 75% stake in Nairoto Resources, a potential gold resource in Mozambique.

Revenue increased by 646% vs. 2020 which is a reminder of the disaster that Covid caused. Compared to 2019, revenue is up by a more sensible 19%. Operating profit is up by 18% vs. 2019 and net profit is 66% higher than 2019.

Looking at net profit and loss over the three-year period tells quite a story: a profit of USD39 million in 2019, a loss of USD93.2 million in 2020 and a profit of USD65 million in 2021. This is an aggregate of nearly USD11 million in net profit over three years. Covid caused chaos for many businesses and Gemfields was hit harder than most.

After slipping into a net debt position in 2021, Gemfields has swung sharply into such a positive cash position that the special dividend of USD1.7 cents per share is possible.

Headline Earnings Per Share (HEPS) in 2021 was 5 USD cents. Friday’s closing price of R3.52 means that the company is trading on a Price/Earnings multiple of below 4.9x (which would fluctuate based on the share price and the exchange rate).

The market treats this one with caution, not least of all because of the underlying exposure to Mozambique. Provided there are no disruptions to operations, Gemfields seems to be in a strong position.

Jubilee Metals has released its results for the six months ended December 2021. This was an important period to the group, as the benefits of the commodity cycle were realised and the integrated Inyoni chrome and PGM facility was completed.

With Inyoni completed, Jubilee is one of the world’s largest chrome processors in operation. The increase in PGM production capacity doesn’t hurt either.

Inyoni got the lion’s share of capital expenditure in this period: R442 million out of R750 million. The remainder of was invested in Jubilee’s copper projects in Zambia. The impact of this capital allocation strategy is that chrome revenue contributed 48% of the group total in this period vs. 22% in the comparable period.

Group revenue increased 18% to GBP63 million and cash increased to GBP21.5 million, a 7.5% increase since June 2021. Jubilee’s liquidity is strong, with short-term assets covering 199% of short-term liabilities. Equity increased by 34% in the past six months.

The short-form version of the SENS doesn’t make any mention of profitability. A dig through the full result reveals that attributable earnings fell sharply from GBP30.9 million to GBP19.5 million. The decrease was experienced in the PGM operations, with a significant drop in sales volumes and a small drop in revenue per ounce. The decommissioning and re-commissioning of the Inyoni Facility skewed the PGM result as production was impacted.

Diluted headline earnings per share (HEPS) fell from 0.89 pence to 0.31 pence. Based on the group’s strategy, this was a short-term pain for a long-term gain.

Since the end of the period, Jubilee settled its long-term debt balance. The balance sheet now has no long-term debt and is ready to be leveraged with debt funding on significant better terms. This will be used in delivering the Northern Zambian copper strategy, which should more than double copper production and introduce cobalt production.

2022 will be a critical year for Jubilee.

Northam Platinum released a trading statement and update for the six months ended December 2021.

The result at HEPS level reflects the joys of being at a favourable point in the cycle, with earnings up between 55.3% and 65.3%. Normalised HEPS is 47% to 57% higher. This was helped by a reduction of shares in issue of around 22.2% as the net result of the B-BBEE transaction restructure and the issuance of shares to Royal Bafokeng Investment Holding Company as payment for the stake in Royal Bafokeng Platinum.

The production result wasn’t great, with a marginal decrease in oz 4E production. Production at Zondereinde was lower due to the operation suffering two tragic fatalities and increased medical absences relating to the pandemic. The Booysendal operation was negatively impacted by production stoppages from regional community unrest.

When production goes in one direction and inflation goes in the other, the cash cost per unit of production can only increase. Group unit cash costs per equivalent refined platinum ounce increased by 18.6%, a combination of Zondereinde’s increase of 21.3% and Booysendal’s 19.1%. The Eland operation helped mitigate the impact, with an increase of only 7.9%.

Purchased material volumes increased by 34.2% and the cost of the materials increased by 21.7%, the net result of the mix of platinum and palladium in the materials and price movements in those metals.

The cost per refined ounce over the six months was R32,814. Full year guidance is a cost of between R33,000 and R34,000 per refined ounce, so further upward pressure is expected.

Despite all the pressures on production, sales revenue increased by 16.8%. With sales volumes lower than in the comparable period, basket prices (despite the stronger rand) saved the day. Average US basket prices increased by 22.5%. Iridium and ruthenium are minor metals but increased by 147.8% and 127.5% respectively, as both metals are important in the growing hydrogen economy.

Thanks to the commodity tailwind, the cash profit margin per platinum ounce is over 50%.
Northam sold 309,255 4E ounces in the six-month period and expects full-year sales volumes of between 720,000 and 740,000 4E ounces.

The net impact of the revenue and cost results was an increasing in operating profit of 12.7%. EBITDA increased by 19.1%. Despite this, cash from operations fell by around 6.5%.

Northam is comfortable with a net debt to EBITDA ratio of 1x and is currently running at 1.13x with deferred consideration on the Royal Bafokeng Platinum shares included. The company expects the ratio to normalise by December 2022, assisted by a juicy dividend from Royal Bafokeng.

After capital expenditure of just R1.3 billion in the comparable period during the pandemic, the restart of projects drove an increase to R2.3 billion. Full year guidance is R4.6 billion.

The SENS makes no mention of the Takeover Regulation Panel’s investigation into whether Northam will be required to make a mandatory offer to the other shareholders in Royal Bafokeng Platinum. The market is waiting patiently for a final ruling on that matter.

Northam’s share price closed 5.8% lower.

Merafe has released results and declared a dividend for the year ended December 2021. The company is firmly on the radar of many small cap enthusiasts, although it is far less of a small cap than a year ago. The share price has jumped over 130% in the past year and is now in mid-cap territory with a market cap of just below R4.5 billion.

Growth in stainless steel production and conditions in China were key to the strength of the ferrochrome market in 2021. That comes through clearly in Merafe’s numbers.

Merafe achieved a 43% increase in ferrochrome production and a 69% increase in revenue in 2021. Production costs per tonne fell by 5%. With numbers like that, it shouldn’t surprise you that EBITDA came in 14.5x higher than in the previous year!

The joy of operating leverage means that EBITDA margin increased from 3.5% in 2020 to over 30% in 2021.

The net effect on profitability is staggering, with a loss in 2020 of 0.8 cents per share now a distant memory after headline earnings per share (HEPS) of 67 cents in 2021.

Net cash increased from R278 million to R972 million, so Merafe was able to declare a final dividend of 22 cents per share after not declaring a dividend in 2020. This takes the full year total in 2021 to 29 cents per share.

Merafe expects a slowdown in global growth from the highs in 2021. Concerns around sustainability of the 2021 result have been the driver of Merafe trading at a Price/Earnings multiple of below 3x.

Other than focusing on efficiencies in its ferrochrome operations, the company is also busy with initiatives in platinum group metals (PGMs) with its partner Glencore.

Master Drilling provides drilling solutions to clients worldwide, which is why results are presented in USD as the reporting currency. These are mining and hydro-electric drilling solutions, not my frequently disappointing attempts to put up a picture for Mrs Ghost.

Naturally, the company benefits from a strong commodities cycle. This has been a feature of the market in recent times. Importantly, the company is also exposed to metals like copper and nickel, which are all the rage as we head towards a future of electric vehicles.

Record revenue in USD has been achieved for the year ended December 2021, up 40% from the prior year. Over 26% of revenue landed in cash from operating activities, so the result was backed up by what all shareholders want to see: money in the bank.

Headline earnings per share (HEPS) measured in USD increased by a whopping 396.2% to 12.9 cents. In ZAR, HEPS was up 349.9% to R1.90. Based on yesterday’s closing price, Master Drilling is trading on a Price/Earnings multiple of 7.8x.

From a free cash flow perspective, cash from operations of USD32.5 million were used to fund USD19.4 million in capex. This is a fairly heavy capex burden, with 43% of the capex invested in expansion and 57% on sustaining the existing fleet.

Debt decreased from US42.1 million to USD32.1 million and the gearing ratio (including cash) improved from 10.3% to 5.8% in 2021.

Moving to a segmental view, the South American business were all between 20% and 30% higher on the revenue line than in the prior year. Utilisation rates improved which also had a positive impact on profitability.

Things are also looking good in Central and North America and the teams in that region are sourcing work in other geographies as well. For example, the North American entity will be used to execute a project in Saudi Arabia.

The most important region remains Africa, with operations in several countries. Again, things look positive overall, and the company is expanding into African countries that meet the investment criteria. There are important technologies being developed and tested in South Africa on certain projects.

The narrative is positive across other markets that Master Drilling operates in, like Scandinavia and India. Master Drilling is investing heavily in Australia and those operations have required more cash than expected.

Master Drilling has erred on the side of caution when it comes to a dividend. Despite this strong result and a solid pipeline of work, no interim dividend has been declared. The company notes the conflict in Ukraine as the major driver of this decision and has indicated that a special dividend may be on the cards once there is more certainty over global conditions.

With fleet utilisation at 70%, Master Drilling is running below the “required benchmark” of 75% but is nearly there. Critically for investors, the company believes that it can capitalise on this commodity cycle without requiring additional capital investment.

The share price closed 3.6% higher yesterday.