I’m not sure it’s possible to have a boring conversation with Piet Viljoen, founder of RECM. He is extremely well read, thinks deeply and were it possible to be described thus, is excessively rational. But today’s discourse on my CNBC Africa Power Lunch show was even better than usual. The conversation ranged from the end of the iron ore supercycle through to the implications of cheap energy and how it would impact Sasol. At the end of the conversation Piet Viljoen applied his mind to goings on at PPC where former CEO Ketso Gordhan is rallying shareholder support to get his job back. Piet and I are very much on the same page there. Hopefully the major shareholders share our view. – AH Â Â
ALEC HOGG: Piet Viljoen from RECM joins us. Piet, there’s a brilliant article on Biznews today, taken from the Financial Times of London about what they call the end of the iron age. Iron ore – the super cycle is over. We’ve seen the prices of iron ore come down sharply and I immediately thought as I was reading it about Piet Viljoen because this almost a ‘buy signal’ for you, isn’t it? When everybody else says the super cycle is over, it starts for you.
PIET VILJOEN: Well, it starts becoming interesting. You’re quite right, Alec. I don’t think the stocks are quite there where they’re cheap enough to be low-risk purchases, but they’re heading in the right direction. We’ve been on record in the past as saying that we like the commodity resource space, with the exception of iron ore because of the very high prices they were still obtaining in the market. That seems to have been changing over the past few months and it seems to have been accelerating just recently, so yes, we’re watching the sector with interest. We haven’t committed any money to it yet, but we’re doing the work.
ALEC HOGG: But I guess as the news starts gathering momentum that the super cycle is over, you might see share prices reacting and coming down even further, and that point in time, starting to look interesting?
PIET VILJOEN: It’s always hard to pick the bottom. When shares or sectors become cheap they tend to stay cheap for quite a long time, so I think time’s on our side. There’s no rush to do anything right now.
ALEC HOGG: The other big story that came out this morning – US is now the biggest liquid petroleum producer in the world, surpassing Saudi Arabia for the first time now, in the month of September… Piet, that surely has big picture implications. Is there anything that would change your mind when you see this kind of development?
PIET VILJOEN: Well, there are two key aspects. The one aspect is cheap energy. I think the impact of cheap energy could be one of the biggest game changers over the next ten to 20 years in the world economy. We seem to be heading in that direction. Energy per kilojoule unit seems to be getting cheaper and cheaper. As we use gas with this wonderful technology called fracking, we’re extracting cheap gas out of the earth, and we’re getting alternative energy sources. Energy per kilowatt unit is becoming cheaper and I think that could be a major game changer and a major facilitator of long-term growth, so I think that’s a fascinating issue to which were applying our minds. We currently have no conclusions, but I think it’s going to change many relationships in markets, the value relationships, who makes how much money and where.
I think it’s something one needs to be very well aware of and you need to put your thinking cap on around that. Of course, the other one – the conflict in the MIddle East: they might be left to their own devices more and more, with less influence from places like the United States, which could be quite interesting as well.
ALEC HOGG: So you haven’t worked out the winners and losers yet, but you do know Sasol very well. With the change in the energy equation, do you think it would be a good thing or a bad thing for them?
PIET VILJOEN: It’s hard to say. Sasol is a very interesting company. It has many projects on the go, but it never really seems to be able to increase its output/volumes over time. Sasol has benefitted from a weak Rand and higher energy prices over time, but its volumes haven’t really increased. Its volumes have had miniscule growth – one to two percent per annum over the past 10 to 20 years, which is quite low, actually, when you think about all the Capex they’ve put to work. To the extent that they’re dependant on the Rand and higher energy prices to drive the earnings, I think it might be a net negative for them.
ALEC HOGG: Talking about Sasol, they recently lost their female black Financial Director, Christine Ramon. Another female black Financial Director was in the news obliquely yesterday, when we spoke with PPC’s Chief Executive, Ketso Gordhan who said that he’d had a problem with one of his executive team. When I asked him if it was Tryphosa Romano the FD, he said ‘no comment’. It does appear though, that there’s quite a lot of goings on behind the scene there: interventions by the Board. Which involves corporate governance, a subject close to your heart. How are you reading PPC?
PIET VILJOEN: I think the PPC case study (if one could put it that way) is fascinating. This is all hearsay, so I don’t know for a fact what’s going on there. It’s just what I read from the newspapers and my own interpretation. It seems that the Board is being bogged down with all sorts of corporate governance and ticking the boxes, etcetera and it’s impeding Ketso’s ability to manage the money to the benefit of the workers, the shareholders, and society at large. I think that’s going to be an interesting battle, so to speak, to see how that battle plays out, going forward.
ALEC HOGG: Are you a shareholder?
PIET VILJOEN: No, we’re not.
ALEC HOGG: Given what you know so far from the interview that we had with Ketso and what you’ve read in the newspapers, would you be supporting him or the Board?
PIET VILJOEN: I would definitely fall on Ketso’s side. I would go with the person who was trying to do business, and not on the person who’s trying to tick boxes.
ALEC HOGG: So the person who’s allocating capital most efficiently would get your vote?
PIET VILJOEN: Yes. Long-term, that generates growth and that generates employment. Ticking boxes does exactly the opposite. The whole problem we have in the economy is that the increasing role of bureaucracy is impeding our ability to grow and create jobs.
ALEC HOGG: Piet Viljoen is with RECM and if you have a look at that Board, five of the ten are Chartered Accountants. Virtually none of them has had any hands-on business experience as well, so I guess it’s not difficult to see why Piet Viljoen would vote for Ketso rather than the Directorate.
