The gold and platinum companies that are going to do well are the ones that can really get the productivity gains out of the employees Bevan Jones, CEO of Thebe Resource Incubator, told Alec Hog and Gugulethu Mfuphi in this interview today after results reports from Harmony Gold and Northam Platinum. In assessing the results of gold and platinum companies it is not only the mining results that must be taken into account but also other factors, such as the metal price scenario; what’s going to happen to the Rand/Dollar exchanges rate; and especially, where any funding is coming from. GK
ALEC HOGG: Welcome back to Power Lunch. Two mining companies released results today: one gold and the other platinum. We’re going to be getting more insights on the gold story from Graham Briggs who Gugu went to see just before the program. Perhaps a little bit more insight on the platinum side: Bevan Jones, who’s the CEO of Thebe Resource Incubator, is with us in the studio. Bevan, how much attention do you pay to individual mining results, rather than the broader movement in the metals?
BEVAN JONES: In this specific case, where you have a specific gold focused producer and a specific platinum focused producer, you have to look at the metal, and what it means for them. However, you also have to look very much at the Rand and, especially, unpack the figures to see the debt situation, the gearing within those companies etcetera, and can it survive.
ALEC HOGG: Can it survive?
BEVAN JONES: Well, if you look at the gold price, the forward price is slightly in contango.
ALEC HOGG: You have to stop there. Contango?
BEVAN JONES: I’m sorry. The forward price is higher on the exchange for instance, than the spot price. For example, traders are factoring in about a $20.00 move in gold prices to 2020. The problem is the forward price never gives you an accurate prediction of where gold prices are going. It’s just where they’re trading around at that time. It’s the aggregate of the market’s punt at that point in time, but it’s related to interest rates. Gold and interest rates trade very much in line with each other.
ALEC HOGG: You said ‘survive’. Were you talking there about Harmony?
BEVAN JONES: Just look at the levels of gearing within each of the companies. Look at what’s going to happen to the Rand/Dollar exchange rate, especially where any funding is coming from; understand the outlook for the metal’s environment; and see what’s going to happen. I think we’ve all seen the cost impact side. The costs are obviously creeping up and I think those companies that are going to do well are the ones that can really get the productivity gains out of the employees.
GUGULETHU MFUPHI: One almost raises one’s eyebrows and thinks ‘how do you do that in the current South African labour environment, because it is a tough terrain to navigate.
BEVAN JONES: Engage directly. Talk to the guys on the ground. Understand what they really want out of going to work every day. It’s hot down there. It’s a difficult environment.
ALEC HOGG: Northam spoke about it. I don’t know if you read the commentary to the results. They said that’s exactly what they’re trying to do at Northam. Their strategy is ‘let’s talk to our staff’, which seems a little belated.
BEVAN JONES: I think many people look at time and motion studies. How long does it take the guys to do their safety talks; get into the working area; make it safe; do the blasting; and do the cycles. There’s such a focus on numbers, I think, and its necessary to start looking at the people and what they’re actually there to do.
ALEC HOGG: Yes, them and us: I’m sure there are guys sitting in the head office who haven’t been underground in quite some time.
BEVAN JONES: Indeed, I’m one of them.
ALEC HOGG: But you don’t work for a mining company. If you were an executive at Northam, sitting in Johannesburg somewhere making decisions, one would expect you to go and talk.
BEVAN JONES: As the Incubator, we work with junior miners and we try to put them into entrepreneurial programs. We try to spend money wisely in terms of funding that we can originate for them, so that they can grow their mine through the resource curve. There, you have to be on the ground. You have to understand what the situations are. You have to understand local issues…like bringing in workers from the old Transkei. There are big issues around that – and just talking to people can solve many of them.
GUGULETHU MFUPHI:Â Exactly. Bevan, I did speak to the Chief Executive of Harmony Gold, which has swung to a fourth quarter loss, according to numbers published today. The mine had a R1.4bn write-down on an expansion project at its Phakisa operation. I spoke to Company CEO Graham Briggs about it.
Bevan, before we let you go, you were giving us some interesting insights about large economies such as China, who we presume are on track – but, fundamentally, things are slightly flawed there.
BEVAN JONES: I think so. I think we’re seeing a property bubble busy bursting. We’re seeing iron ore prices massively down because of pollution concerns; steel plants closing; and slow growth in the economy. That’s quite worrying for the global economy although, on the upside, the U.S. is doing better; it’s reindustrialising its steel belt because it has cheap energy etcetera. On balance, it’s probably good for gold and for platinum going forward, and we do see the forward prices looking healthier. It’s probably not fantastic for emerging market currencies like the Rand, but it’s positive for the gold miners. At your small, marginal gold miners, you’re probably seeing people looking at taking the chance because they are currently so cheap. Certainly, any issue with China, which makes the balance of the economies unstable, is going to be good for the gold price.
ALEC HOGG: Before you go – because we’re going to talk to Sim Tshabalala in just a moment – this whole Standard Bank story with the aluminium, which has cost them R890m and has knocked their financial results for the six months: what do you make of it?
BEVAN JONES: It’s happening to all the commodity traders and all the banks that finance commodities. You look at how Mercuria, a large commodity trader, is currently battling in the courts with City Bank over who’s material is actually in the Port of Qingdao and a couple of other ports. This is because warehouse receipts have been double-counted and the Chinese traders have been using this double-counting to finance other trades, which are also crumbling and collapsing. It’s a bit of a pyramid scheme that you’’re seeing there. Standard Bank is obviously doing what it can, legally, to try to reclaim.
ALEC HOGG: But how did they not pick it up if it’s a pyramid scheme? These guys get top Dollar.
BEVAN JONES: You have to have really good collateral managers who go there and actually record what’s on the ground. There are many ways in which people can crook the system, but I think it’s all lessons learned.
ALEC HOGG: Those of us with long memories will remember that Dimension Data had a similar thing some years ago. Chinese accounting, they call it and it’s been going on for many years. You would have thought Standard Bank… Well, we’ll find out from Sim Tshabalala what happened there. Thanks, it was really good to have you in the studio again, Bevan.
GUGULETHU MFUPHI: Indeed. That was Bevan Jones. He’s the Chief Executive of Thebe Resource Incubator.