ARTICLES

Gold and Harmony

In our last Confidential Report, published on 6^th March 2024, we drew your attention to the fact that the US dollar price of gold was about to break up through a critical resistance level at $2060. Gold has now moved up to $2166 so this observation provided an opportunity for private investors to make a significant capital gain, either in actual gold or in specific gold shares.

Over the long term, gold has always offered an excellent hedge against the weakness of paper currencies and international political risk. The rand’s steady decline against the US dollar over the past 32 years is reflected in the rand price of gold which has gone from less than R1000 per ounce in August 1992 to current levels above R41000. Consider the chart:

One of the ways to capitalise on the steady rise in the rand price of gold is to buy krugerrands and they have performed very well as mechanism to protect your wealth against all the uncertainty and mismanagement which have become endemic features of the South African economy over the past three decades.

For those investors who have more risk appetite, there was always the option of buying the shares of those gold mining companies with good prospects. One such company is Harmony Gold. This mine used to be one of South Africa’s most marginal gold mines and the share was whip-lashed back and forth as the gold price went up and down.

Then in 2021 it bought the Mponeng gold mine for R4,2bn. Mponeng has the dubious distinction of being the deepest mine in the world – which obviously made it relatively risky. The benefit is that the deeper the mine in South Africa, generally the higher the recovered grade. This is because South African gold exists in conglomerate form as part an ancient sea-bed. Being a heavy metal, gold tended to sink to the bottom of that sea – so the best grades are found at the deepest levels. 

Clearly, the directors of Harmony took a huge risk in buying Mponeng gold mine - which the late Brett Kebble once described as the “...the world’s most expensive long-drop.” Their gamble has paid off handsomely, especially in the last year because the recovered grade from Mponeng is reaching 9 grams per ton, resulting in a 30% increase in gold production. Harmony’s headline earnings per share (HEPS) in their latest financials for the six months to 31^st December 2023 was up 226%.

We added Harmony to the Winning Shares List on 16^th November 2023 at a price of 9920c per share. It closed last Friday (22-3-24) at 14829c – a gain of 43,97% in just over 4 months. Consider the chart:

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PDSNET ARTICLES - NOVEMBER 2018

Showdown

A showdown is looming in the gold mining industry. On the one side we have Sibanye Stillwater which is now South Africa’s largest gold producer represented by Neal Froneman, and on the other the notorious Association of Mineworkers and Construction Union (AMCU) led by Joseph Matunjwa. Froneman is a tough, experienced mining engineer who has taken on the task of reviving and consolidating South Africa’s ailing gold mining

Capitec Revisited

On 19^th February 2018, about two weeks after the Viceroy report on Capitec that took the share price down 25%, we published an article in which we suggested that Capitec was in fact very cheap, because its Price:Earnings Growth ratio (PEG) was at just 0,63. At the time, Capitec was trading for around R820 per share. The PEG ratio can be easily calculated

Pan African Resources

Normally, we advise private investors, especially beginners in the share market, to stay away from commodity shares because of their volatility. Commodity prices are set on international commodity markets over which commodity producers usually have little or no control. This means that it is difficult for a commodity producer to have any clear idea of exactly how much he will be able to sell his product for. At the same time