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:

DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.

PDSNET ARTICLES

The Creation of Money

The money supply of a country is a symbol of the goods and services of that country. Obviously, if the size of the money supply is increased more rapidly than the real growth of its economy, then you have more money chasing the same goods and services, resulting in rising prices. Since, over the long term, the only organisation that can create money is the government,

V-Bottom is likely

The 10% collapse of Wall Street, which is a direct result of Trump’s random policy of on-again, off-again tariffs, is very similar to what happened to Wall Street in February/March 2020 when investors tried desperately to accurately discount the impact of the COVID-19 pandemic.

Normally, corrections in the market

The Trump Correction

It is relatively unusual for the activities of American presidents or what they say to have an impact on the New York Stock Exchange, especially during their first 100 days in office. Trump, however, is the exception. His confused, on-again, off-again rulings on tariffs have rattled the market. Markets hate uncertainty and even Trump himself doesn’t appear to know exactly

Dividends

Investors know that the return on a share is made up of a capital gain plus the dividend. Private investors are mostly attracted to the prospect of making a capital gain on the shares which they buy and do not often consider the dividends. What they perhaps do not realise is that a capital gain is actually just the dividend in a different form.

Quarterlies

One of the major differences between the US equity markets and the JSE is that listed companies in America are required to report every 3 months, not every 6 months as they are on the JSE. The quarterly reports of the S&P500 companies are closely followed by investment analysts and predictions are made for their profits.

Gold's Record Run

On Friday last week, gold reached a new all-time record high of $2871.42 per ounce. Its gain in rands has been even more impressive rising from less than R1000 per ounce in August 1992 to last Friday’s close of R52864.85.

In our Confidential Report of March

Growth by Acquisition

Hudaco (HDC) is a master of growing by acquiring smaller businesses in similar fields of activity or businesses, which then complement its existing suite of businesses. It has been making these bolt-on acquisitions for many years and has developed great expertise at selecting and evaluating appropriate targets.

These bolt-on acquisitions are mostly small

The Impact of News

Old Wall Street wisdom says the following concerning news which comes out about individual listed companies:

1. Good news which is expected - causes the share price to drop.
2. Good news which is unexpected - causes the share price to rise.
3. Bad news which is expected - causes the share price to rise.
4. Bad

Karoo

In April 2018 – nearly seven years ago – we wrote an article about Cartrack. At the time we suggested that it was the ideal investment for private investors because it was a service company with debit order income and almost no working capital that was growing rapidly both locally and internationally.

Tweets

Over the Festive Season, we have been communicating with you via our tweets on “X”. The chart below shows the timing of our individual tweets and what subsequently happened to the S&P500 index.