Impala Platinum’s earnings have nosedived (JSE: IMP)

This is hardly a surprise based on PGM prices

The pain in the platinum sector continues, with Impala Platinum releasing a trading statement for the six months to December that reflects an expected drop in HEPS of between 40% and 49%. Ouch!

With PGM prices still at depressed levels, the best that these mining houses can do is try to increase production and keep unit costs under control. There are many factors at play here, ranging from operational efficiencies through to the underground grade. The performance at individual mine level is always volatile of course, which is why mining groups have more than one mine!

In aggregate, gross group 6E production fell by 4% (gross indeed!) and refined 6E production was up 2%. Sales volumes increased by 5%, so they dug into the storeroom and sold more than they produced in this period.

Sadly, mining costs tend to go up with inflation even when the underlying commodity price doesn’t. Group costs per 6E ounce will be up by around 3%. Although that’s a pretty modest increase, it still comes at a time when PGM prices aren’t really behaving themselves.

This is why there is such a nasty expected drop in HEPS, coming in at between 184 and 217 cents for the interim period. Even if we just double the mid-point and assume 400 cents as a full-year earnings number, the current share price of R97.60 suggests a huge P/E multiple.

But here’s the thing: seeing such high multiples is typical in a depressed cycle. The old story goes that the right time to be terrified of mining stocks is when the P/E is nice and low! Despite the drop in earnings, Impala Platinum’s share price is up 59% in the past 12 months as the market has been pricing in some positive momentum in platinum prices, even if the timing of those price improvements wasn’t enough to save this result.

Mining is a difficult industry for investors and the platinum sector is probably hardest of all.

Santam’s earnings got even stronger in the second half of the year (JSE: SNT)

The momentum from the interim period is visible here

Whenever you see a significant percentage move in full-year earnings, it’s always worth going back to the interim period to get a sense of second-half performance relative to the first half of the year. Santam managed almost 35% growth in HEPS for the first six months, so that was a lovely foundation for the year. The great news for shareholders is that things got even better in the second half!

The expected HEPS for the year to December reflects growth of 40% to 60%. This puts them at HEPS of between R32.34 and R36.96 per share. At the mid-point, Santam is therefore on a Price/Earnings multiple of around 11x. This shows you the quality of the businesses that you can still get your hands on for low-teen multiples on the JSE.

The increase has primarily come from stronger underwriting results despite weather-related issues, so that’s an impressive performance. Of course, net underwriting margin does have a practical upper limit (or Santam’s policies would be uncompetitively priced), so investors also need to watch carefully for gross written premium growth. Santam has described that growth as “satisfactory” and we will have to wait and see what that means when results are released on 3rd March.

Nibbles:

• Director dealings:
  • A director of Prosus (JSE: PRX), who also happens to be the ex-financial director of Naspers, sold a huge chunk of shares in Prosus worth around R375 million. No, that isn’t a typo.
  • A non-executive director of Collins Property Group (JSE: CPP) sold shares worth R1.1 million.
  • A director of Premier Group (JSE: PMR) bought shares worth R999k.
  • An entity associated with Warren Wheatley bought R69.6k worth of ordinary shares in Altvest (JSE: ALV), as well as R9.9k in Altvest preferred A shares (JSE: ALVA), R5k in Altvest preferred B shares (JSE: ALVB) and R14.9k in Altvest preferred C shares (JSE: ALVC).

• Santova (JSE: SNV) has released a bland cautionary announcement, which means a cautionary announcement that gives almost no details whatsoever. They talk about “negotiations with parties related to potential strategic transactions” – and that could genuinely mean anything. Nonetheless, punters immediately got stuck in and the share was trading 8% higher shortly after the announcement.

• I covered the Powerfleet (JSE: PWR) press release in yesterday’s edition of Ghost Bites, noting the significant uptick in revenue and adjusted EBITDA. For those looking for deeper insights, the full 10-Q report (US quarterly disclosure) is now available here.

• Orion Minerals (JSE: ORN) has announced the appointment of a COO. The timing of this is important, as the Definitive Feasibility Studies for the two main hubs in the Northern Cape are almost complete. This means that Orion is going to move from explorer to mine developer, which of course is a big deal in the journey of any mining company. You only need a COO when you have some Operations that need an Officer, so this is a great milestone for the company!

• Sable Exploration and Mining (JSE: SXM) released an announcement based on comments made at a general meeting of shareholders. Despite the CEO noting that there is a potential transaction in early stage of discussions, Sable isn’t trading under cautionary and they still aren’t under cautionary, with the company noting that the discussions are “preliminary” and thus caution isn’t required. Although it’s true that merely having discussions doesn’t immediately trigger a cautionary announcement, it’s still poor form to have mentioned it at the meeting with no cautionary in the market. It’s either too preliminary to be communicated to shareholders or it isn’t, but you can’t be half-pregnant here.

• In case you’re still following Tongaat Hulett (JSE: TON), the company has announced the terms of the Mozambique transactions with the Vision Group. This is as part of the ongoing implementation of the business rescue plan that was adopted in January 2024.