David Shapiro on the big winners from Southern Cape gas strike

On Rational Radio Live, market veteran David Shapiro reports back on his "homework" from last week – what stocks should investors be loading up on now in anticipation of benefitting from the gas bonanza that could flow from Total's billion barrel strike off the Southern Cape Coast. – Alec Hogg.David Shapiro joins us every week around about this time to talk investments. But before we get into that Dave, I did give you a bit of homework. If you recall last week, we said if the gas prospects in the Southern Cape are for real, which I for one do believe they are, how can we get a little slice of it as investors?.___STEADY_PAYWALL___.You know Alec it's going to be much broader. The more I thought about it, the more you're not quite sure which companies are going to be involved. You know the only real exploration company that we have that I know is involved, would be someone like Sasol. But I think there's a much broader benefit. The more you think about it – and you only have to go to our current account numbers that came out today for the first quarter, you know you'll see a trade deficit. This is largely because of the oil that we import..Also read: The Editor's Desk: The Total gas strike will change SA forever.So any move that would reduce that, is going to have significant underpin to the total economy. Also around that are the ancillary effects of mining. Alec I don't think people fully comprehend the multiplier effect of what mining did for this country or what setting up a factory does..So the more I think about it, I couldn't quite link it to any particular business because we don't know enough about who is going to benefit and who's going to be behind the financing of it, but I think any move like that has major implications. When you start to sink a hole – of course you need equipment, where do you get that equipment, where do you get the servicing of that kind of equipment?… and so on..Also read: Total doubles up its bet on Africa – The Wall Street Journal.If you go back to the gold industry you'll understand. When we were the resource capital of the world back in the 60s and 70s and 80s what those mines did, what a single shaft did to an entire area, to an entire city. So I think you must think around those kind of benefits more so than perhaps saying is an individual company in which we can benefit a couple of things..And an interesting thing I hadn't even thought of. But you made the point that they're going to need finance. It's a nice story for the banks. The other thing was the late Tony Twine who was a great economist. Tony was blind and yet he was one of the most amazing economists that Africa has produced because he somehow just absorbed all the facts without being able to read them. He said that the shale gas, even a fraction of what we know is there, was going to create hundreds and thousands of jobs. Now these strikes that were the first that Total had and Shell is putting its money in there as well. And the trough off the southern Cape Coast. That much bigger than shale gas. Those are big numbers when you talk about hundreds of thousands of jobs..And how! You know what they do is that they help our finances. You know it just helped the trade balance. We don't have to go and earn dollars to pay to import oil. If you go back to Sasol, I know the Sasol project in the 1950s was really developed because of fear that there might be boycotts against us because of the apartheid projects. We developed Sasol. But this is natural. That was taking coal and converting it into oil. But this is a completely different industry. Something came across my desk today which was so interesting and I was looking in the cupboard and I found a report that was produced in October 1968 and it had all the listed shares It had all the listed mining companies and so on. And what really struckme is that because of the mining wealth that we were creating we were able to finance other industries. If I look at the number of packaging companies a number of the production numbers they were very very small in 1968. There were only a handful of banks listed a handful literally a handful of insurance companies so the server side was very small. What was big was the productive side. And that's that's the kind of benefit that you will get from that and from employment . it's a one way that we can get and create jobs. You know you need project of that magnitude to actually help employment..David talking about the productive side, the big loser on the JSE today was Sappi's just taken a caning. It's down six and a half percent today, really it's under a lot of pressure whats going on?.Look I think the recovery at Sappi is complete and what's happening now are the realities of the industry in which they're involved are starting to tell. increased competition. I think the prices that they put up – they can no longer do that anymore. They are not in the same. They're not in the packaging side. Mondi converted its old business model towards packaging, Sappi still remains quite involved in paper which is the magazine quality paper. Yes they are making some benefits from chemicals but it's not making a significant change to their revenues. And also they're facing increased costs. So they're getting squeezed by lower demand and lower margins because they can't increase prices and then also increase costs. So we've seen the share come down from the heights that we saw about a year ago to these levels and it's been a massive reversal. They're holding their debt. They can't help that because debt is increased simply because of the prospect. So it's a completely changed story..We're going to be talking to Bernard Swanepoel in a moment and you'll remember him in the studio from his days as CEO of Harmony. I just looked at the Harmony share price along with other gold shares – has had a really lovely run up from R23 on Monday last week to R28.50 today. When the gold shares start running it tends to suck people in, is it sucking you in?.No. I've been watching gold. Funny enough, Harmony's been the one that's actually kind of underperformed even though it has performed. But what staggered me is that over the last two weeks, Goldfields Limited is up almost 50 percent, I think somewhere in the region of about 45-46 percent. And then AngloGold has run up 30 per cent and was up again today. I can't reconcile it because when I look at the gold price – yes the gold price is at a three month high but it's still very much around the $1,330/$1,340 level, not really doing a lot. I know the rand is helping but both Goldfields and AngloGold are not rand miners – they don't mine here in SA anymore. So what is driving them up? I think it's general global buyers of gold shares who see problems in the world, they see the threat to the global economy that trade wars might bring. So they come in for gold shares as a kind of safe haven. So I think this is safe haven buying you know and its been very aggressive. So Harmony. Good luck to them. But I'm happy for Bernard..Well I don't think Bernard has too many Harmony shares left but it's a very good point. Gold Fields is at R75 today. It was at R51.50 last Monday. My goodness so 40 to 45 percent increase. Good talking with you as always a happy week ahead and look forward to chatting next week.

David Shapiro on the big winners from Southern Cape gas strike

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