Ghost Bites (ArcelorMittal | Brait – Ethos Capital | Sibanye-Stillwater | Spear – Emira | Tongaat Hulett)

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ArcelorMittal expects losses to worsen (JSE: ACL)

Weak domestic demand in China is a core issue

ArcelorMittal closed nearly 5% lower on Tuesday after releasing a business update and trading statement. The bad news was right at the bottom of the announcement, with the headline loss per share for the six months to June expected to be between R0.96 and R1.04 per share, which is significantly worse than the loss of R0.40 in the comparable period.

China’s domestic steel consumption is weak due to the ongoing property crisis in that country and generally weaker infrastructure demand. This means that Chinese steel exports are flooding international markets, putting pressure on prices. Although tariffs in some markets on Chinese steel may help with prices, this is a complex situation that is very difficult for a company like ArcelorMittal to deal with.

What would help tremendously is an uptick in South African domestic demand for steel, as South Africa’s primary steel exports increased 13% in the first quarter of 2024. This means our exports are competing internationally with Chinese exports, which makes a tough situation even worse.

In some good news at least, the Longs steel operations have been stable for the first half of the year. Given the overall worries around the future of that business, this is important. There are some green shoots here, including improved performance by Transnet. The trade unions remain a major stumbling block, though.

The Flats business didn’t have such luck due to instability in the blast furnace, with hopes to claw back the lost volumes in the second half of the year.

With the share price down 67% in the past 12 months, this is an interesting way to take a very risky position on what the GNU could mean for domestic demand.

Brait shareholders say yes to the recapitalisation (JSE: BAT)

And Ethos Capital shareholders approve the unbundling of Brait (JSE: EPE)

Brait has released the results of its extraordinary general meeting. This sounds very fancy, but it’s basically a meeting to vote on the resolutions for the recapitalisation of the company. This includes the rights offer as well as the necessary resolutions for the convertible bonds.

They received almost 100% approval from those at the meeting, but please don’t mistake that for thinking that the market loves what Brait is doing. On the contrary, this is just the lesser of two evils from a shareholder value destruction perspective.

The share price is down 44% this year.

Although not technically a related deal but certainly part of the broader story, Ethos Capital shareholders approved the resolutions for the unbundling of Brait shares. And as previously indicated, Ethos has also bought shares shares held by Black Hawk and taken on its debt for no consideration. Black Hawk is a structure linked to two directors who were basically given by debt guarantee by Ethos to help them subscribe for shares.

The Black Hawk Down jokes write themselves.

Sibanye-Stillwater has concluded the latest s189 (JSE: SSW)

The SA gold and PGM operations will have a combined shared services structure going forward

Sibanye-Stillwater has been having a very tough time of things. The PGM prices simply aren’t playing ball, with the share price suffering as a result. To manage this prolonged downturn, the company has looked for every internal efficiency it can find, including in the gold operations.

The section 189 process for the SA gold and shared services functions has been concluded.

The Beatrix 1 shaft will be allowed to continue, provided there are no net losses on an average trailing three-month basis. If those losses happen, the shaft will be closed.

In the shared services side, the gold and PGM services will be combined into a single regional operational structure. The total number of forced retrenchments over the past 18 months in that regard is 966 employees out of a total of 11,500 potentially impacted employees.

Spear releases the circular for the Emira transaction (JSE: SEA | JSE: EMI)

This is important for Spear (and Emira) shareholders to read

If you are serious about learning about the markets (and of course you are, because here you are, reading Ghost Bites!) then I highly recommend taking the opportunity to read through circulars when they are released. You’ll learn so much. The latest example from Spear can be found here.

Spear is looking to acquire a large portfolio from Emira that is a genuine mover-of-the-dial for Spear. It will take the fund’s total assets from 29 to 40, with on ongoing bias towards the Cape Town Metropole. The value of the acquisition is R1.146 billion, which is a discount to the market value of R1.236 billion. The seller is paying transaction fees of R22.5 million.

Based on the price net of fees, the average initial annualised net operating income yield is 9.85%. Next time you want to put all your money into a residential buy-to-let opportunity, work out the yield and compare it to what Spear is paying here. Then ask yourself whether you are better off taking immense concentration risk in one property, or investing in REITs instead.

No prizes for guessing which route I like to take.

And finally, well done to Spear for pulling this deal off with total corporate costs of just R6 million, including only R600k in transaction advisor fees. Whilst I appreciate that property deals aren’t directly comparable to corporate M&A, there are management teams on the JSE that regularly get fleeced by investment bankers. They could learn a thing or two from Spear.

Tongaat Hulett might remain a listed company (JSE: TON)

But I don’t see much point

Tongaat Hulett might not be disappearing from our market after all. Vision Investments will be subscribing in new shares in the company by exchanging a portion of the lender group claims for new shares.

This is likely to end in a mandatory offer by Vision to other shareholders though, so it’s quite possible that the listing ends up being terminated anyway. It’s just not a guarantee at this point that the listing will disappear, even though Vision will hold 97.3% after the subscription for shares.

Even if minority shareholders want to stick around for some reason, the JSE won’t be happy with such a low spread (the number of public shareholders). I don’t see how the Tongaat listing survives this.

Little Bites:

• Director dealings:
  • A number of The Foschini Group (JSE: TFG) directors sold shares previously received under share awards. Although some sales were specifically to cover the tax (including sales by the CEO), there were other sales that appear to be in excess of the tax amount. Those sales come to roughly R17 million in total across several directors.
  • The CEO of Pan African Resources (JSE: PAN) sold shares worth R1.8 million and entered into a collar structure over 500,000 shares as security for a loan of R2.1 million. The collar is a put at R4.94 per share and a call at R9.59 per share. The current price is R6.35. The finance director also took out a loan (but much larger at R11.1 million) and pledged 2,000,000 shares as security with a put at R6.07 and a call at R6.98.
  • A director of Southern Palladium (JSE: SDL) bought shares worth R1.35 million in an off-market deal. Disappointingly, this wasn’t disclosed to the company secretary timeously and so the company released this announcement a few days past the deadline.
  • A director of Copper 360 (JSE: CPR) bought shares worth R67.5k.
  • There were a number of sales by Alexander Forbes (JSE: AFH) directors in relation to share awards received, but not in obvious ratios and not always linked to tax. In some cases the sales seem to relate to previous tranches of shares. It’s too intermingled to pick out specific values, but just be aware that there has been selling.

• Alexander Forbes (JSE: AFH) has received approval from the SARB for its special dividend, payable on 22 July.

• As part of a deal going back to 2018 for the acquisition of AccTech Systems and Dynamics Africa Services, 4Sight (JSE: 4SI) announced that shares owing to nominated employees of the acquired companies have now been transferred to them. The shares were already in issue and held by Silver Knight Trustees. Those employees are responsible for covering the related taxes. The total value of transferred shares is R1.27 million.

• Telemasters (JSE: TLM) announced a share repurchase programme between now and 30 September 2024, with a price capped at a 10% premium to the five-day VWAP. There isn’t much liquidity in this stock, so those looking to get paid for their holdings should watch the bid carefully to see if the share repurchase gives that opportunity.

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