Ghost Bites (BHP | Glencore | Merafe | Shoprite | Zeder)

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BHP makes a copper acquisition (JSE: BHG)

The target is Filo Corp in Canada

After having a good ol’ sniff around Anglo American (JSE: AGL) and subsequently walking away based on an unwillingness by the Anglo board to propose the deal to its shareholders, BHP has found love in Canada. Unsurprisingly given BHP’s narrative around Anglo, the target company is involved in copper.

Filo Corp. is listed on the Toronto Stock Exchange and owns 100% of the Filo del Sol copper project in South America. BHP will be acquiring the firm alongside Lundin Mining, with BHP and Lundin creating a joint venture to hold Filo as well as the Josemaria projects in Argentina and Chile. Lundin currently holds 100% of Josemaria. By pooling their interests in the region, they create potential synergies around infrastructure and staged expansions.

BHP’s total cash payment for the deal is expected to be $2.1 billion, so this is a meaty cheque to write. The total deal value is $4.1 billion, representing a 32.2% premium to Filo’s 30-day VWAP before the date of press speculation around the deal. Interestingly, to pay for its part of the deal, Lundin will offer shareholders in Filo an option to accept cash or shares in Lundin.

To provide interim financing to Filo while the deal is underway, BHP and Lundin have agreed to subscribe for shares worth a total of C$115 million.

Glencore needs a strong second half to the year (JSE: GLN)

The first half of the year has been weak relative to the expected second half

Glencore expected 2024 to be a tale of two halves and that seems to be playing out, with full year production guidance maintained despite a significant drop in production in the first half of the year.

With various issues related to ramp-ups and annual shutdowns (within Glencore’s control) and more tricky matters like geotechnical events, there are a number of reasons why second half production will look better than the first half across several commodities.

Own sourced copper was down 2% for the first half. Cobalt fell 27%, zinc was down 4% and nickel came in 5% lower. Ferrochrome production fell 16% (see Merafe below) and coal was down 7%.

There is no room for error in the second half, which is always a bit scary in a sector as operationally unpredictable as mining.

Merafe’s earnings have dropped sharply (JSE: MRF)

The company made the decision to decrease production based on market conditions

Merafe’s attributable production from the Glencore Merafe Chrome Venture fell by 17% for the six months to June, due to the Rustenburg smelter not being operational in 2024. They made this decision based on prevailing market conditions, as it was cheaper to not run that smelter at all for the period than to run it at a loss-making level.

HEPS for the six months will be between 23% and 43% lower at between 24.0 and 32.4 cents, which isn’t a surprise in the context of the production number combined with lower commodity prices.

Merafe’s cash balance is R1.72 billion, up from R1.66 billion as at the end of December 2023. Included in this cash is R344 million set aside for future environmental obligations, so not all that cash is available.

At Shoprite, Sixty60 continues to deliver (JSE: SHP)

And group sales growth is still in the double digits

Shoprite has released an operational update for the 52 weeks to June 2024. The group increased sales by 12% for the year, which is a really impressive outcome. Nothing seems to be able to stop them!

If we consider the two halves, group sales increased by 13.9% in the first half of the year and 10.2% in the second half, so there’s a slowdown there – if you can call 10.2% a slowdown. Supermarkets RSA is where things cooled off, from growth of 14.6% in the first half to 10.1% in the second half. A significant part of this trend was the stores acquired from Massmart, which weren’t in the base period for the first half but were there for the second half.

Oddly, the Furniture division saw sales growth improve in the second half, from 1.7% to 3.2%, giving full year growth of 2.3%. Supermarkets non-RSA was pretty consistent through the year, with full year growth of 6.1%. The Other Operating Segments bucket did well, up 21.1% for the year. OK Franchise was the star of the show there, with sales up 23.8%.

The core of the group is Supermarkets RSA, contributing 81% of group sales. With 12.3% full year growth after a performance of 17.8% last year, they really have washed away the competition over the past two years. Internal selling price inflation was 5.8% for the full year and 3% for June, so food inflation has thankfully calmed down. That’s good for consumers, but not necessarily for grocery retailers that use food inflation to offset inflationary pressures in other costs like energy and security.

Within the underlying businesses, Checkers and Checkers Hyper grew by 12.3%. Sixty60 continued to deliver in every way possible, with sales up 58.1%. Shoprite and Usave were up 10.7% and LiquorShop grew 20%. Some of the new formats are being rolled out quickly, like Petshop Science with 33 new stores and UNIQ clothing with 13 new stores.

Of course, this doesn’t tell us anything about profitability yet. The market has to wait for detailed financials to see that, due for release on 3 September. It certainly helps that load shedding costs for the second half came in at R254 million vs. R500 million in the first half. Electricity costs went up of course (because Eskom actually supplied the stuff), with the group guiding mid to low single digits growth in water and electricity costs overall.

The share price peaked its head above the R300 level for the first time before closing just below it:

Zeder announces another disposal (JSE: ZED)

This time, it’s Novo Fruit Packers

In June, Zeder announced the disposal of Theewaterskloof Farm. In July, the disposal of Applethwaite Farm was announced. To make it a trio of deals, the company has announced the disposal of the Novo Fruit Packhouse operation in Paarl.

This is part of the Capespan Agri asset that is included in Zeder Pome Investments, in which Zeder holds 87.1%.

The price is R195 million plus the value of stock-on-hand, limited to R5 million. The net assets as at 31 December were R214.5 million and profit after tax for the year ended December came in at R16.4 million, to give you a sense of valuation.

The purchaser is Dutoit Agri.

Little Bites:

• Director dealings:
  • The group company secretary of Vodacom (JSE: VOD) has sold shares worth R387k.
  • An associate of a director of Pick n Pay (JSE: PIK), James Formby, purchased shares worth R295k.
  • Acting through Titan Premier Investments, Dr Christo Wiese has bought another R63.2k worth of shares in Brait (JSE: BAT) and R198k worth of nil-paid letters as part of the rights offer.

• With all the noise around the board of Quantum Foods (JSE: QFH) at the moment, it’s interesting to note that Piet Burger has been appointed as an independent, non-executive director. He has held executive positions at Tiger Brands and Pioneer Foods previously. With Country Bird trying to remove the chairman of the company at the moment, it’s quite a time to join.

• NEPI Rockcastle (JSE: NRP) will be holding a capital markets day in Romania on 1 October, so I’m sure that a few lucky property analysts will get on a plane. For the rest of us plebs, the presentation will be made available on the day.

• Mark Bower will be stepping down as chairperson of Netcare (JSE: NTC), having been on the board since 2015 and in the role of chairperson since January 2023. Alex Maditse, currently an independent non-executive director, has now been appointed as lead independent director.

• Ellies Holdings (JSE: ELI), the listed holding company, has been placed under final liquidation. Operating entity Ellies Electronics is still in business rescue and the business rescue plan is being implemented.

• Efora Energy (JSE: EEL) is suspended from trading. Although the company has made a major effort to catch up on financial reporting, it still owes the financials for the year ended February 2024 to the market. They expect to achieve this by 2 August, so they are nearly there. In the business itself, the transfer of the Alrode Depot to Efora has been completed.

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