Subscribe

Like many large mining groups, BHP is in the process of moving away from fossil fuels. Thungela, the coal business unbundled from Anglo American in 2021, is an excellent (but perhaps extreme) example of the opportunities this can create.

BHP‘s deal relates to its oil and gas portfolio, which will be combined with the business of Australian energy company Woodside Petroleum. When this transaction is concluded, the merged entity would have a high-margin oil portfolio, long-life LNG assets (Woodside is Australia’s largest natural gas producer) and a strong financial position.

Woodside has issued an explanatory memorandum and notice for a shareholder meeting to vote on the transaction on 19 May. The independent expert report has also become available, concluding that this deal is in the best interests of Woodside shareholders.

BHP believes that the merger is on track for an implementation date of 1 June 2022, assuming all goes well with the shareholder vote and the outstanding regulatory approval.

The deal will see BHP receive newly issued Woodside shares and distribute them to shareholders as an in-specie dividend. Woodside isn’t listed on the JSE, so that’s going to be problematic for small BHP shareholders. The announcement talks about a share sale facility for eligible small BHP shareholders who elect to participate.

Further down the announcement, it notes that local shareholders need to specifically communicate a desire to their CSDP to hold the Woodside shares. This must be communicated by 26 May and would require consideration of exchange control regulations. Those who do not send such a communication (which will be almost everyone I’m sure) will be deemed an “Ineligible Overseas Shareholder” and will be settled in cash as far as I understand it. That doesn’t quite tie up with “electing to participate” in the sale facility, so shareholders must keep a close eye on this to avoid falling foul of any requirements. It certainly makes sense for the default to be a cash payment instead of receiving Woodside shares.

The irritation is that Woodside will seek a listing on the London Stock Exchange (LSE) as part of the deal but not on the JSE. It’s a great pity that the company doesn’t see any value in a JSE listing, as this would allow South African investors to take a view on Woodside. After the clear support for Thungela, it’s clear that there are plenty of investors who are quite happy to invest in fossil fuels.

There’s no guarantee of how the Woodside share price will behave after this deal or whether it will prove to be a lucrative opportunity. It just would have been nice for South African investors to have a chance to participate. Of course, you can always buy the offshore shares in your global portfolio where you would already have taken the money out of the country. This is no different to buying shares in US companies, provided your broker can execute in Australia.

Alphamin Resources produces 4% of the world’s mined tin at its mine in the Democratic Republic of Congo.

The company has provided an operational update for the quarter ended March 2022. The great news for shareholders is that record EBITDA guidance of USD98 million has been given, up 32% from the prior quarter.

This was driven by a 14% jump in the tin price achieved, 9% growth in contained tin sold and a record plant recovery of 78% (vs. 75% in the previous quarter).

The net cash position has increased substantially from USD68.2 million to USD129.5 million even after a USD30 million dividend payment. There’s a tax payment of USD43.5 million due for payment in April, before shareholders get too excited about that balance.

Interestingly, ore processed and contained tin produced were both 2% lower than the previous quarter but were in line with guidance.

From a capital allocation perspective, the Mpama South Mine is a priority and exploration activity is ongoing. Drilling expenditure of around USD20 million is planned for FY22. Around 85% of drill holes to-date have intercepted visual tin mineralisation. That’s the official geological term for a simple outcome that shareholders love to hear: we have tin!

Mpama South’s development will take Alphamin to around 6.6% of the world’s tin production. The operation is expected to achieve first tin production by December 2023.

Alphamin’s share price is up a whopping 119% over the past year and is up 14% this year.

It hasn’t been a secret: Renergen has needed to find a funding solution to fully develop the exciting Virginia Gas Project. Instead of a rights offer, Renergen has found a strategic investor.

Ivanhoe Mines (listed in Canada and with existing mining operations in South Africa) has become a 4.35% shareholder in Renergen at a 5% discount to the 30-day volume weighted average price (VWAP). That’s only part of the story.

There is a pathway for Ivanhoe to increase its shareholding to 25%, this time at a 10% discount to the 30-day VWAP. This option is open to Ivanhoe after the completion of a 120-day due diligence period that commences immediately.

That’s not all, folks.

If Ivanhoe goes ahead with the 25% deal, there is a further option to increase the shareholding to 55%. This would once again be at a 10% discount to the 30-day VWAP and the funds would be used to develop and up-scale the Virginia Gas Project. If that goes ahead, Ivanhoe will be entitle to appoint the majority of the members of the board.

This brings a North American investor onto the register and gives Renergen access to significant capital for the phase 2 development.

The initial tranche raises an equivalent of just over R200 million. The final tranche is much bigger of course, up to USD250 million (the currency is really important here).

Ivanhoe is currently focused on the strategic minerals needed for the electric phase of our energy evolution. These include copper, nickel and platinum group metals. Helium will now be added to the mix.

As part of the deal, Ivanhoe’s platinum subsidiary has the sole right to negotiate to be the offtaker for the power generated by the gas and solar hybrid power facility anticipated during Phase II of the Virginia Gas Project.

The initial subscription for a 4.35% stake did not require shareholder approval. The subsequent transactions do, so Renergen is preparing a circular that will be sent out in due course.

The share price rallied 4.4% in response to the news.

It’s amazing how momentum works for and against companies. When times are good, the happy news just seems to keep on coming. Conversely, when times are bad, it seems like every SENS announcement is another reason to grab the tissue box.

Gemfields is firmly in the former category, with an exceptional rebound after Covid and a core business that seems to be doing very well.

In more good news, another record auction has been achieved for emeralds from the Kagem mine in Zambia. Gemfields owns 75% of this mine and the other 25% is held by the Industrial Development Corporation of Zambia.

Of the 32 lots offered, all 32 were sold. This raised auction revenues of USD42.3 million. The previous high was USD23.1 million achieving in the auction in August 2021.

Encouragingly, the average price per carat of USD9.37 was also a record, so there is a strong underpin of price and volume.

There were 56 companies placing bids in this auction, almost double the level seen around two years ago just before the pandemic hit.

Since July 2009, 40 auctions of Kagem gemstones have generated USD792 million in total revenues.

The Gemfields share price is up more than 20% this year and has increased by a huge 150% in the past year. Over 5 years, the share is down 9.5%. It makes for quite a share price chart.

One of the things I really like about Sibanye-Stillwater is that the company keeps investors informed about the operations and the strategy. There are regular, detailed presentations made available to investors.

There are two presentations that have been made available in the past week. Sibanye attended the Bank of America Sun City Conference and us plebs who didn’t crack an invite can at least read the presentations.

You’ll find a useful presentation here (company overview) and the Sun City Conference presentation here (SA PGM operations) if you want to read the entire things.

In this article, I’ll pull out some of the most interesting facts about the company.

The company categorises its operations into SA Platinum Group Metals (PGM), US PGM, SA Gold, Battery Metals and Circular Economy Operations (tailings operations like the controlling stake in DRDGOLD). The acquisition strategy is focused on battery or green metals, like lithium and nickel, as part of preparing Sibanye for future demand.

Sibanye has made a name for itself through risky but ultimately highly rewarding acquisitions. When nobody wanted to touch platinum businesses a few years ago, Sibanye ran around mopping them up. R44.4 billion was invested over a three-year period. Net of capex, the cumulative adjusted EBITDA contribution from the investments is R90.1 billion. The payback on investment is thus just over 2x in a matter of a few years. Lonmin is particularly incredible, with a 6x payback achieved over just two years.

Capital allocation is the name of the game in this industry (as it should be in all industries). Off the back of record profits, Sibanye reduced and refinanced debt to reduce the interest burden. In 2021, Sibanye bought back 5% of shares in issue and the dividend yield was 9.8%.

The Sun City Conference focused on the PGM operations, perhaps because the resort sits at the heart of the local industry near Rustenburg. We’ve already discussed that Sibanye achieved great payback returns on recent acquisitions. If you focus on just the SA PGM operations, the total investment was R18.2 billion and the payback is 4.96x since 2016.

The focus in mining (once capital has been allocated) is to move down the cost curve. For various reasons, different platinum mines have different cash costs to get the platinum (and related metals) out of the ground. Here’s the chart from the presentation to give you some idea of how this works:

Another important chart is planned capital expenditure, which is expected to decrease in the PGM business over the next decade:

I’ve pulled one more chart to increase your curiosity about this industry. Salaries and wages are 43% of operating costs, which is why Sibanye (and other mines) are so sensitive to wage demands in the industry:

If you want to learn more about the company and the sector, I highly recommend flicking through the presentations that I gave you the links to earlier.

Disclaimer: the author holds shares in Sibanye-Stillwater

Renergen has released a quarterly activities report that covers the three months to February 2022. Aside from lots of excitement around the core operations and the introduction of new investors, there are some rather memorable names for the wells and the exchanges on which the helium tokens will trade.

Much of the newsflow was in March, which strictly speaking falls outside of this reporting period. Nonetheless, the Renergen report highlights the capital investment transactions along with other updates.

I’ve previously written in InceConnect on the Ivanhoe Mines transaction and the 10% investment in Tetra4 (the holding company for the Virginia Gas projects) by the Central Energy Fund (CEF). Follow the links to read about them in detail.

The report also highlights an offtake agreement with Italtile for liquefied natural gas (LNG). This is a source of low-carbon fuel for the production process of ceramics, which uses considerable amounts of thermal energy. The benefit for Italtile is that the company can forecast its energy inputs with less exposure to volatile commodity markets. The benefit for Renergen is obvious: the sale of LNG to an industrial customer in a strategy to displace liquefied petroleum gas (LPG).

The attractiveness of LNG as an energy source contributed to the decision by Ivanhoe Mines to invest in Renergen. Other than the investment option to take this to a controlling stake, the deal includes the right for Ivanhoe to use Renergen’s LNG to power its platinum operations in South Africa in a strategy to take the mine off-grid using clean energy.

Moving on to the Virginia Gas Plant, all process plant modules have arrived and are positioned onsite. Electrical terminations and utility connections are in the final stages of completion and the civil construction of roads and buildings is ongoing.

The most prospective Virginia Exploration Rights have been submitted for renewal to the regulator. The three least prospective rights have not been renewed as this is a costly exercise. Instead, a Technical Cooperation Permit has been lodged over the area to ensure maintenance of mineral tenure.

Two new wells at the Virginia project have struck gas. In a nod to geeks everywhere, the latest wells are named Frodo and Balrog (after Lord of the Rings characters), following on from wells R2D2 and C3PO (Star Wars). Beyond the unusual naming convention, the important news is that the latest wells were sited using new techniques and Renergen seems to be happy with the outcomes of the technology.

Finally, the introduction of helium tokens to create a spot market for the gas is well underway. The subscription service online went live and listings on exchanges have been confirmed for April. The odd names for the wells are surpassed only by the name of one of the crypto exchanges for the tokens: Pancake Swap.

There’s never a dull moment at Renergen.