Homechoice is an outstanding fintech business. In 5 years, it has gown earnings per share at a 25% compound annual growth rate. Its Buy Now Pay Later (BNPL) business is growing exponentially. Gross Merchandise Value has increased by 19.5x in the last 6 years, a 100k new customers a month are signing up. It is now the largest BNPL service provider in South Africa.

Network Effects and Scale Economies:
Homechoice has created a digital platform that connects 2.7 million smart-phone borrowers, with 2800 retail merchants. Through its legacy mail-order catalogue business, Homechoice has curated a specific unsecured lending niche. Its average digital-savvy customer is a 37-year-old, black, urban, female, who has a low credit-risk score. A staggering 85% of customers are repeat customers. Pay Just Now, Homechoice’s BNPL service provider, has signed up 2800 retail merchants who can now provide free credit to their customers. Merchants pay an average 6% of the credit extended as a merchant fee. Pay Just Now then disburses and collects the credit, after an instore credit application is performed, by the customer on their mobile phone. The customer pays a third of the purchase price upfront, and then the remaining balance over two monthly instalments. Once a customer is on the platform, Homechoice can cross-sell additional products, such as funeral insurance and a digital wallet. Digital analytics are sold to the merchant. This provides powerful network effects that benefit the customer, the merchant and Homechoice. As more customers and digital products are added to the network, Homechoice benefits from powerful scale economies. In 5 years, annual revenue per employee has increased from R2m to R5m.

Recent Results:
Results for the 12 months to December 2024 were spectacular. Revenue increased by 20.6%, driven by a strong 38.7% increase in fee income, (largely insurance premiums and merchant fees). Debtor’s costs increased slightly more than revenue, but the quality of the loan book remained robust with constant credit loss ratios, despite strong growth over the last 3 years. Profit after tax increased by 25.7%. HEPS increased by 27.3% to 394 cps. Dividends increased by 17% to 97cps

The gold price is close to a record high:

The fund has invested in two gold mining companies. These companies produce gold, primarily through a mine-waste (tailings) retreatment process. This is a relatively low-risk, high-return, business model. At current operating margins, these companies are staggeringly profitable:

Pan African will produce 60% of its 315k ounce annual gold production from tailings retreatment, within the next 12 months.

Pan African plans to increase gold production by 57% in the next year. The new Mogale Tailings Retreatment (MTR) operations have now fully ramped up to 50k ounces of annual production, at an All In Sustaining Cost (AISC) of $950 per ounce. The adjacent Soweto Cluster of tailings deposits will soon add another 10k ounces to annual production and extend the life of the MTR operation to 21 years. Pan African is negotiating with Sibanye Stillwater to acquire several dormant tailings deposits in the area. These would add to annual production at little incremental cost. The Tennant Creek Mining Group tailings operation, in Australia, goes into production within the next few months. This will add a further 55k ounces to annual production at an AISC of $1 300 per ounce for an initial 6 years, with a less than 3-year payback period. There is significant exploration potential, with a mineral resource of 1.3m ounces.

Recent Results:
Results for the 6 months to December 2024 were impacted by lower production and a costly gold hedge, mitigated by a higher gold price. Revenue decreased by 1% to $189m. Profit after tax increased by 10%. Earnings per share increased by 10.3% to 2.35 US cps. Lower production stemmed from ESCOM transformer issues and shaft upgrade delays. These have now been resolved. Happily, the gold hedge (a requirement of the MTR project financing facility) has been closed, and near-term expansion capex is largely complete. Future dividends, and share re-purchases, are expected to increase significantly.

DRD produces all its 165k ounce annual production, from tailings retreatment.

Volume Growth:

DRD plans to increase gold production by 33% by June 2028. This will be achieved through the recommissioning of the Withoek Tailings Storage Facility at ERGO, and the completion of the massive deposition Regional Tailings Storage Facility, and doubling of Driefontein 2 plant capacity, at the Far West Gold Recoveries. DRD expects to play a consolidation role in the Far West Rand, on completion of the new storage facility, through the acquisition of dormant tailings deposits.

Recent Results:

Results for the 6 months to December 2024 were spectacular. Revenue increased by 28% to R3.8bn. Operating profit increased by 74%. HEPS increased by 65% to 112.2 cps. Interim dividends were increased by 50% to 30cps.

Unlocking the hidden value within Africa Energy and Impact Oil and Gas:

Africa Energy is a USA listed oil and gas exploration company. In 2013 it formed a joint venture to explore Block 11B/12B, an 18 000 km2 area, 175 km south of Mossel Bay. HCI owned a small stake in Africa Energy through Impact Oil and Gas. In 2019 after incurring more than $400m in exploration and drilling costs, the joint venture announced they had made two significant gas condensate discoveries. They named these Brulpadda and Luiperd. A plan was developed to sell the gas to PetroSA. This would replace the depleted feedstock for their 45 000 barrel a day gas to liquid plant in Mossel Bay. In addition, a 2 300MW gas to power plant was planned. This would replace all of Eskom’s diesel generators.

In July 2024 Africa Energy’s partners in the joint venture (TotalEnergies, Qatar Energy and Canadian Natural Resources) decided to abandon their
interests. This was due to the project’s inability to sign an offtake agreement with PetroSA and the SA government. This left Africa Energy with 75% of the project. (The other 25% shareholder being a BEE entity controlled by former MTN CEO Phutuma Nhleko). Africa Energy’s plan was to secure an offtake agreement, then farm-out the project to an oil-major to develop the gas infrastructure.

In December, an interesting development occurred. HCI quietly increased its stake in Africa Energy. It now has a 60% controlling interest, held through a company that also holds Impact Oil and Gas. (Impact owns a 9.5% interest in the giant Venus discovery). It suggests Africa Energy has made progress in securing an offtake agreement. It also suggests HCI intends to reverse its holding in Impact into the listed Africa Energy, then unbundle the combined entity to HCI shareholders, as it did with Montauk. As the market subscribes little value to the oil and gas assets within HCI, this should unlock significant value for shareholders.

ISA generates a 44% Return on Equity. It pays out all its earnings as dividends.

ISA has been a great investment for the fund. The fund’s original purchase has been more than covered by dividends received, and the share price has tripled.

Cyber Security:
ISA provides a Managed Cyber Security Service to blue-chip customers, who pay monthly subscriptions. MSS Pulse is an internally developed cyber security infrastructure management, monitoring, and reporting platform, that helps secure clients’ IT systems from cyberattack. Subscription revenue accounts for 86% of total revenue, the difference is derived from distributing Fortinet and Palo Alto cyber security products. Demand for cyber security products and services has robust growth potential. Clients’ IT systems are under persistent and increasing attack, and regulatory and legislative compliance requirements are also increasing.

Recent Results:
Earnings for the 6 months to August 2024 were driven by lower revenue but higher gross margins. Revenue decreased by 8% as a few large product sales in the prior period did not reoccur. Gross profit increased by 8% as margins increased to 55%, on increased contribution from higher margin managed services. Headline earnings per share increased by 10%.

Lewis has repurchased 48% of its shares in issue. Over the last 10 years, it acquired shares at an average 49% discount to Net Asset Value. It has created significant shareholder value in the process.

Store Expansion:
Lewis sells furniture, appliances, and electronics, mainly on credit. Other revenue (finance charges and insurance premium) makes up 46% of total revenue. It has 897 retail stores, mainly in South Africa. It operates under the following brands: Lewis, Best Home and Electric, Bears, Bedzone, Real Beds and UFO Furniture. Through store expansion, Lewis is increasing market share. In the last 6 months Lewis opened 15 new stores and acquired 13 more, in the acquisition of Real Beds.

Lower Interest Rates- Improving Consumer Demand:
Consumer credit conditions are improving. Lower anticipated interest rates increasing affordability, lower transport and food prices on a stronger currency, and the suspension of load shedding are adding to improved consumer sentiment. Lewis is well positioned to benefit.

Recent Results:
Earnings for the 6 months to September 2024 were spectacular. Revenue increased by 13,6% to R4.4bn. Operating profit increased by 54.1%, (margins increased to 20.2% from 14.2%). The debtors book grew 16.9% and satisfactory paid account were a healthy 81.6% of the total debtor book, (debtor costs as a % of total debtors remained constant at 7%). The gearing ratio increased to 46% of equity, as inventory levels increased in anticipation of peak Christmas sales. Return on equity was 12%. Headline earnings per share increased 49% to 555cps. Interim dividends per share increased 50% to 300cps.

Jubilee Metals is an exciting tailings processor, ramping up copper and chrome concentrate volumes:

Zambian Copper:
Happily, in September 2024, a new Private Power Purchasing Agreement was signed. (Jubilee had suffered from erratic hydro-electric power supply, due to a drought). This game changing agreement now supplies uninterrupted power to all of Jubilee’s operation in Zambia. Jubilee is currently on track to produce 1800 tonnes of copper for the 6 months to December 2024, and 6 000 tonnes for the full financial year to June 2025. This will be ramped up to over 13 000 tonnes per annum by June 2026. Copper earnings are expected to increase materially. At the current copper margin of $2670, 6 000 and 13 000 tonnes of copper production will generate $16m, and $35m per annum, respectively, in Earnings Before Interest Tax Depreciation and Amortisation (EBITDA). Copper margins should also increase as volumes increase, and more (high value) cathode, compared to concentrate, is produced.

South African Chrome Concentrate:
Jubilee is one of the world’s largest chrome-concentrate producers. It is on track to produce a record 1.65 million tonnes to June 2025. As a byproduct of its chrome operations, it will produce 36 000 ounces of Platinum Group Metals (PGM). Jubilee plans to ramp up production to 2 million tonnes of chrome concentrate and 42 000 ounces of PGM, in the financial year to June 2026. Chrome margins should increase as less third-party feedstock is used.

Recent Results:
Earnings for the 12 months to June 2024 were impacted by a decline in PGM prices and volumes. Revenue increased by 20% to $205m. EBITDA of $28m declined 7%. Non-current liabilities declined 3% to $22m.

Pan African Resources has been a fantastic investment for the fund:

Mogale Tailings Retreatment (MTR) Project:
The MTR project will start producing 50k ounces of gold per annum in December, increasing total production by 25%. This high return, low risk tailings retreatment project will produce gold at an All-In-Sustaining-Cost (AISC) of $900 per ounce. (This is materially below the industry average AISC of $1414 per ounce). At the current hedged gold price, the R2.5bn construction capex will be repaid in less then 2.5 years. The project has a 13-year life of mine, with plans to increase production to 60k ounces per annum, over 21 years.

Declining Capex, Increasing Free Cash Flow and Dividends:
As the MTR and the Evander number 7 Shaft projects are nearing completion, future expansion capex is expected to decline significantly. On increased production, free cash flow generation, debt repayment and dividends should increase materially. Return on Equity of 24%, is expected to increase to over 30% in the coming year.

Recent Results:
Earnings for the 12 months to June 2024 were driven by a 5% growth in volume sold, and a 11% increase in gold price received. Revenue increased by 17% to $374m. attributable earnings increased by 30%, and headline earnings per share increased by 32%. Dividends per share increased by 22%.

Homechoice is an exciting Fintech business:

Weaver Fintech:
Weaver provides short-term unsecured loans, through a smart phone app, it then cross-sells funeral insurance, and a mobile wallet, to existing customers. Weaver has a clearly defined target market. It has 1.8m digitally enabled customers, which accounts for 12% of its total addressable market. (The average customer earns R15 700 per month and is 37 years old, 71% are female and 79% are responsible payers). Its Finchoice brand is trusted by its customers, as evidenced by an 85% repeat customer rate. Weaver’s digital platform drives customer adoption, and automation delivers efficiencies. There has been a 10x growth in customers in the last 5 years. It takes 1 minute to originate a loan to an existing customer, and 5 minutes for a new customer. Direct cost per digital transaction has reduced from R490, to R158 over the past 5 years.

PayJustNow:
Buy-Now-Pay-Later (BNPL) is an innovative service that benefits both merchants, and their customers. PayJustNow is the largest BNPL service provider in South Africa, with 2400 merchants signed up. These merchants can now provide interest free credit to their customers. Customers typically pay a third of the purchase price up front, and the balance over two monthly instalments. PayJustNow provides funding and collection, and underwrites the credit risk, (after conducting a real-time instore credit check). PayJustNow charges the merchant a transaction fee for BNPL services provided. Gross merchant value has grown 12x to R2.4bn, in the last 4 years.

Retail:
The legacy retail business now contributes only 5% to operating profit. With the demise of the post office, its mail order catalogue business has suffered. It now has a multi-channel distribution model which involves a call centre, digital marketing, and physical showrooms. With renewed focus on bedding products and better credit extension, together with increasing showroom roll-out, the retail business should start to contribute to earnings growth.

Recent Results:
Results for the 6 months to June 2024 were driven by a 17% increase in digital loan disbursements, 174% increase in BNPL gross merchant value, and a 25% increase in funeral insurance premiums. Revenue increased by 14.6% to R2bn. Credit loss ratios were maintained despite the constrained consumer environment. (The wholesale funding market remains supportive, with significant covenant headroom remaining). Profit after tax increased 35%. Earning per share increased 38% to 197cps, and the interim dividend was increased by 36% to 95cps.

The fund’s investment in HCI has doubled in value. There is a good chance it will double again in the next three years.

Impact Oil and Gas:

HCI owns 49.9% of Impact Oil and Gas. Impact owns 9.5% of two offshore oil and gas exploration blocks, in the Namibian Orange River Basin. Impact’s partner, TotalEnergies, has drilled four exploration wells. According to HCI’s management, these blocks are likely to produce “several billion barrels of oil, and trillion cubic feet of gas, over time”.

• Farmout Agreement: Impact has entered into an agreement with Total, which de-risks Impact’s funding liability. (The agreement has been signed but still needs the approval of the Namibian government).  In exchange for an additional share in the blocks, Total will provide Impact with an uncapped carry loan covering all future development, appraisal, and exploration costs. It also provides for a payment of $99m as a reimbursement for past costs. The loan is repayable from JV cashflow after first-oil is produced. Determining the full extent of the recoverable oil and gas is an ongoing project, that will take a few years. Total’s development plan is still to be announced, but first-oil is expected somewhere around 2030.
• Valuation: The market currently places little value on Impact’s potential. However, a rough estimate can be made with reference to the number of Floating Production Storage and Offloading (FPSO) platforms the development plan envisages. Depending on flowrate, oil price, first-oil date, and discount rate assumptions, each FPSO could be worth a $1bn of Net Present Value to Impact. This equates to R100 per HCI share.
• Additional Exploration Assets: Impact owns a 22% interest in the Orange Basin Deep License covering 14k square km off the coast of South Africa, immediately south of the existing Namibian discoveries. It also owns 45% interest in a 124k square km license, off the Transkei coast.

Recent Results:

Results for the 12 months to March 2024 were underpinned by strong earnings growth from Southern Sun. Net asset carrying value per share increased by 5% to R235 per share. EBITDA increased by 7%. Headline earnings per share declined by 29% after a fair value impairment on a casino license.

Argent has been a fantastic investment for the fund.

It generates a 14.2% Return on Equity (with 7% gearing), and trades on 5x earnings and a 5% dividend yield.

Shareholder Value:
With the help of an activist investor, Argent has created significant shareholder value. It has sold non-core assets in South Africa, repurchased a significant amount of shares, and invested in high return businesses in the United Kingdom. (Half of revenue, and 63% of Profit Before Tax, is now earned from outside of South Africa, mainly in the UK and USA).

Increasing Offshore Exposure:
Argent’s strategy is to wind down its South African steel and aluminium trading companies, Phoenix Steel and Gammid. The capital released will be invested in its UK distribution platform, for the local manufacturing operations. These businesses include well-known brands such as Jetmaster, Xpanda, American Shutters and Castor & Ladder. Additional working capital investments will be made to grow the UK specialist manufacturing operations– Fuel Proof manufactures fuel storage solutions. Fluid Transfer International and Flofuel manufactures mobile fuel dispensing systems for the international aviation industry, as well as the maritime and oil distribution industry. OSA Door Parts manufacturers a range of industrial doors. Partington supplies retail material handling solutions and Cannock Gates supplies iron and wooden gate products for the consumer market. The USA operation, New Joules Engineering which manufactures speed control retarder systems for rail yards.

Recent Results:
Results for the 12 months to March 2024 were driven by increasing contributions from offshore revenue, and export sales. Revenue increased by 4%, HEPS increased by 7% to 438.5cps. (Earnings were tempered by the increase in the UK corporate tax rate, from 19% to 24%). A total dividend of 115cps was declared, and the share repurchase program will continue into the new year.

• Afrimat has a history of buying distressed businesses, and turning them around quickly
• It has recently acquired Lafarge’s distressed construction materials business. It plans to turn it around quickly

Afrimat is primarily a bulk commodities miner, producing iron ore and anthracite. It also has construction materials, industrial metals and phosphate operations. Afrimat generates an impressive 25.6% Return on Net Operating Assets, with virtually no debt.

Lafarge Acquisition:
Lafarge’s South African operations were acquired for $6m, and R900m in repayment of loan accounts:

• The business is loss making. Management believe it can be quickly turned around, through some innovation, and enhanced operational efficiencies.
• The acquisition adds significant new capacity to Afrimat’s existing aggregates quarries and ready-mix operations. It now provides a national footprint with well-located quarries. It provides entry into the fly-ash/cement extender market. A grinding plant allows for various new value-added products, and the cement kilns provide entry into the cement market, with state-of-the-art equipment.
• The timing of this transaction is opportune. The construction materials business in SA is experiencing increased activity. Railway and road maintenance being key drivers of increased demand.

Recent Results:
Results for the 12 months to February 2024 were driven by higher bulk commodity volumes. Revenue increased by 24% to R6.1bn. HEPS increased by 24% to 567.3cps. Operating Profit margins decreased from 19.6% to 18.9% due to a poor performance from the industrial metals (lime) business.

AECI is a global mining explosives business. It is in a restructuring process, which aims to double profits, within 18 months. 

Restructuring:
AECI’s new management team plans to sell its non-core businesses. Disposals include Schirm (a German Agri-chemicals business) and Much Asphalt. These are recent acquisitions that have materially under-performed. It plans to grow the mining explosives business by focussing on the Asia-Pacific region, expansion of existing operations in Latin America, and entry into North America. It has initiated plans to reduce dependency on South African produced ammonia, through import substitution. Although the chemicals business is dependent on SA GDP growth, profitability will be enhanced through focus on cost reduction, and improving efficiencies.

Recent Results:
Results for the 12 months to December 2023 were impacted by higher finance costs. Revenue increased by 5% to R37.5bn. EBITDA increased by 3% to R3.7bn. HEPS decreased by 12%, on a 63% increase in finance costs. By 2026, management plan to increase EBITDA to more than R6bn, and increase Return On Invested Capital (ROIC) from 11.2% to above 19%. They aim to maintain the gearing ration at the current 35%. Non-core sales proceeds will be returned to shareholders through buy-backs, and/or used for acquisitions to enhance the core growth strategy.

Jubilee Metals is a tailings processor that is well positioned to benefit from higher chrome-concentrate, and copper prices:

Chrome Concentrate:

Jubilee has a high return, low risk business model. It processes third-party chrome tailings on a fixed margin, to produce chrome-concentrate. The chrome-concentrate tailings are then re-processed to recover Platinum Group Metals. These are sold in the spot market, at high margins. Jubilee has developed an innovative modular processing technology. This uses modern milling and measuring methods, which allow for efficient extraction. Modular plants (that can process multiple types of chrome feedstock), allow for the rapid ramp up of production volumes. Within 5 years, Jubilee has become one of the world’s largest chrome concentrate producers. It currently produces 1.45mt per annum, with plans to produce 2mt pa by 2025. Jubilee has recently shifted its model to partly producing chrome concentrate and PGM, from its own feedstock. As volumes ramp up to 2mt pa, margins should increase materially.

Copper:

Jubilee is using the same modular processing technology to produce copper from tailings, in Zambia. It has invested ~$100m in plant and smelting capacity, and currently produces 5 800 tonnes pa, at a cost of $4 554 per tonne. It is in the process of ramping up production to 13 000 tonnes pa. Jubilee has recently entered into a partnership with Abu Dhabi’s International Resource Holding (IRH) to develop a Zambian waste rock project. IRH was the successful bidder for the giant Mopani Copper Mine. The waste rock project plans to produce 24 000 tonnes of copper units pa, at a cost below $4 000 per tonne. The project is in the due-diligence phase, and is subject to a $50m investment from IRH. The waste rock resource contains 260m tonnes of waste material at Mopani, with copper grades over 1.5%. Jubilee has also entered into a joint venture agreement with Mopani to develop all historical slag waste from the Mufulira smelter operations. This project is currently in technical review.

Recent Results:

Results for the 6 months to December 2023 were driven by higher chrome and copper prices, as well as volumes, but tempered by lower PGM prices. Revenue increased by 18% to GBP75m. EBITDA increased by 14%. Profit after Tax increased by 7.3%. Earnings per Share increased by 7% to 0.16 pence per share.

Pan African Resources (PAN) generates at 20% return on equity, and trades on a 4% dividend yield.

Once the Mintails retreatment project is operational, PAN will be generating 40% of its gold production from tailings. It also has high-grade, long-life underground operations, at Barberton and Evander, that benefit from legacy infrastructure investment, acquired at attractive valuations. PAN is ramping up production volumes, and will benefit from 80MW of solar energy investment:

• Volume Growth: PAN currently produces 180k ounces of gold per year. This will increase to more than 230k ounces per annum by June 2025. Mintails, located on the west Rand, will add the bulk of the additional ounces, with 50k ounce per annum production, commencing in December 2024. Mintails has a planned 20 year life, 3.5 year pay-back period, and an All-In-Sustaining-Cost (AISC) of $914 per ounce. The R2.5bn project is on time and within budget, and demonstrates how profitable tailings retreatment can be.

• Renewable Energy- Cost Reduction: PAN currently generates 9.5% of its electricity needs with 28.6MW of installed solar PV panels. By 2027 it will generate 40% of its needs, with 80MW solar PV. This will not only provide more reliable power, but will also generate a cost saving of over R200m per year.

Recent Results:

Results for the 6 months to December 2023 were much improved. Gold production increased by 7% to 98k ounces, and AISC decreased by 0.3% to $1287per ounce. Revenue increased by 24% to $194m. EBITDA increased by 41%. HEPS increased by 46% to 2.22 US cps. Annualised EBITDA covers Net Debt of $64m, by 2.3 times.

DRD Gold (DRD) generates at 19% return on equity, and trades on a 6% dividend yield.

DRD produces all of its 180k ounce annual gold production from tailings retreatment. It has two operations. ERGO on the east Rand, and FWGR on the west Rand. ERGO experienced production shortfalls during the period due to a number of once-off factors (water-use license delays, and community disruptions). These have now been resolved. FWGR experienced yield declines as production shifted from Driefontein 5, to Driefontein 3. Happily, significant medium-term volume growth is expected:

• Volume Growth: Phase 2 of the FWGR Driefontein 2 project has commenced. This doubles capacity of the plant, and increases the Regional Tailings Storage Faculty by 800mt. The Platinum Group Metals tailings JV with Sibanye Stillwater is in final approval stages. The results of a uranium project feasibility study will, hopefully, be announce at the year-end results presentation, in August 2024.
• Renewable Energy- Cost Reduction: ERGO has invested in a 14MW Solar Power Project, which will be fully commissioned next month. A 160MWpower storage facility will be functioning by October this year. These initiatives will account for all of ERGO’s power needs, and result in an estimated cost saving of R9 per ton of tailings processed. This equates to R140m per annum.

Recent Results:

Results for the 6 months to December 2023 were driven by a 22% increase in average gold price received. Gold production decreased by 7% to 90kounces, and AISC increased by 10% to $1575 per ounce. Revenue increased by 12% to R2.974bn. Group Operating Profit increased by 15%. HEPS increased by 10% to 68.4cps. DRD has R1.5bn cash on hand, with R3bn near-term capex plans.

Hudaco is a value added distributor of imported industrial products. It generates a 20% return on equity, and trades on a 6%dividend yield.

Its businesses fall into two primary categories:

• Consumer: Supplies products focused on the automotive aftermarket, power tool and fasteners, data networking, gas and outdoor, security and communication, and battery and sustainable energy markets.
• Engineering consumables: Supplies products focused on bearings and belting, electrical power transmission, diesel engine, hydraulics and pneumatics, specialised steel, thermoplastic fittings, and filtration markets.

Sustainable Competitive Advantage:

Hudaco has a significant scale advantage over its competitors. Its large balance sheet, and wide branch network, allows for high stock availability and an extensive product range. The sale of replacement parts and products, with a high value-added component, leads to multiple repeat orders, and high margins.

Growth Through Acquisition:

Hudaco has an impressive track record of acquiring businesses cheaply, and integrating them well. During the past year Hudaco bought two businesses. In September it acquired Brigit Fire, an importer and distributor of fire detection, containment and suppression systems. In December it acquired Plasti-Weld, an importer and distributor of plastic welding equipment. These businesses were bought on low earnings multiples (with profit warranties), and have clear synergies and cost rationalisation opportunities identified. They should add materially to future earnings growth.

Recent Results:

Results for the 12 months to November 2023 were driven by growth in the engineering consumables business. (Supply of diesel engines, gear pumps, filtration, bearings and power transmissions, modular belting and electrical products were exceptional performers). Turnover increased by 9% to a record R8.9bn. Comparable earnings (after excluding a covid related insurance claim in the base) increased by 10%. Total dividends per share increased by 10%, after a R112m share repurchase. Hudaco has repurchased 10.3% of its issued shares over the last 4 years.

HCI is an investment holding company. It owns a large portfolio of assets, the most interesting of which is Impact Oil and Gas:

Impact Oil and Gas:
Impact owns several deep water African oil and gas prospects. The Venus Project, located in the NamibianOrange Basin, has made a significant oil and gas discovery. On January 1^st 2024 Impact entered into a Farmout Agreement with TotalEnergies. This is not the outright sale as expected, but it will create significant long-term value for HCI shareholders.

Venus Project- Farmout Agreement:
Impact has sold half of its stake in the Venus Project, and negotiated a free carry on all future exploration and development costs.

• The farmout agreement entails the sale of a 9.39% interest in Block 2912, and a 10.5% interest in Block 2913B. On completion of this transaction, Impact will hold a 9.5% interest in each block. Impact will also be reimbursed in cash for its share of the past costs incurred. This is estimated to be approximately USD 99 million. The agreement provides Impact with a carry loan for all of Impact’s remaining development, appraisal and exploration costs from January 2024 until the First Oil Date. The carry is repayable to TotalEnergies from Impact’s after-tax cash flow and net of all joint-venture costs, including capital expenditures, from production on the blocks, post the First Oil Date. During the repayment of the carry, Impact will pool its entitlement barrels with those of TotalEnergies for more regular off-takes, and a more stable cashflow profile. It will also benefit from TotalEnergies’ marketing and sales capabilities.

This agreement provides a low risk way for HCI to participate in a massive oil and gas project, for decades to come.

HCI Owns a Large Portfolio of Assets:

• Listed companies: Tsogo Sun Gaming (49.7%), Southern Sun Hotels (40.5%), eMedia Holdings (80.3%), Frontier Transport (82.2%), Deneb Investments (85.3%) and Platinum Group Metals (25.1%).
• Unlisted companies: HCI Coal (100%), HCI Properties (100%), Impact Oil and Gas (49.9%), Gripp Advisory (75%), BSG (40%), Alphawave (42.3%) and La Concorde (89.4%).

Recent Results:
For the six months to September 2023 income increased by 6%. EBITDA increased by 18% to R2.959bn. Hotel revenue increased by 34%, with much higher room rates and occupancy close to pre-covid levels. Gaming revenue increased by 7%. HCI’s stated Net Asset Carrying Value is R239.90 per share.

Reunert generates at 17.4% Return on Equity, with no gearing. It trades on a 5.5% dividend yield.

Reunert is thriving. The electrical engineering, renewable energy and defence segments are doing particularly well:

Electrical Engineering:
Strong earnings growth in the power cable and circuit-breaker segment is being driven by investment in electrical infrastructure in South Africa and Zambia. Higher margins have been achieved through large cable contracts in SA, better product mix in Zambia, and scale efficiencies in manufacturing. Material investment into the transmission-grid to enable South Africa’s renewable energy aspirations is expected. Eskom is spinning out the national transmission grid into an independent company, as articulated in the Transmission Development Plan (TDP). This requires over 14 000km of new lines to enable the country’s 50GW renewable energy investment target. The TDP requires significant investment into Aluminium Conductor Steel Reinforced cable.

Renewable Energy:
Reunert imports and distributes a wide range of lithium-ion batteries. Continued loadshedding increased demand for residential and small commercial batteries. A record order book drove earnings in the Solar EPC business. A joint venture with AP Møller Capital has been created to enhance growth in the Build Operate and Own portfolio. There are now 87 plants in operation and work in progress. The large containerised battery manufacturing business is reaching full production, and should experience significant growth in the commercial and industrial market.

Defence:
Geopolitical tension has driven record demand for Reunert’s electronic artillery fuse, radar and encryption business. The successful integration of Etion Create, acquired in the previous period, has also contributed to record revenue and profit growth. Etion manufactures navigation equipment and displays for combat vehicles. Strong earnings growth is expected, driven by increased capacity in the fuse factory, easing supply-chain constraints and improved export permitting processes.

ICT:
This segment imports, distributes and finances office equipment. It also distributes air-time. It is customer base is experiencing severe headwinds, which has lead to flat earnings growth. Over the last few years Reunert has acquired a number of digital integration businesses in an effort to scale and diversify the segment. It’s latest acquisition, IQ Business, will contribute meaningfully in the near term, and should allow for the a separate listing of the ICT segment.

Recent Results:
For the 12 months to September 2023 revenue increased by 23%, operating profit increased by 28%. Headline earnings per share increased by 16% (after accounting for an increased provision for credit losses on the office equipment finance book). Free cash flow generation increased by 87%, as inventory levels normalised. The final dividend was increased by 11% to 332cps.

Textainer is one of the world’s largest shipping-container lessors. It has been a fantastic investment for the fund.

Stonepeak Offers to acquire Textainer for $50 per share:

Stonepeak is a US based investment manager, which makes infrastructure investments, on behalf of pension fund clients. In October, Stonepeak entered into an agreement to acquire all of Textainer’s common shares, for $50.00 per share in cash. The transaction is expected to close in the first quarter of 2024, subject to customary closing conditions. These include approval by Textainer’s shareholders, and other required regulatory clearances and approvals. The agreement includes a 30-day “go shop” period, expiring on 22 November. This permits the company to solicit alternative bids, at a higher price.

Alternative Bid, or Revised Stonepeak Offer:

It is likely that a higher price will be received. Textainer’s stated book value as at 30 September 2023 is $48 per share. This prices Stonepeak’s $50 offer at a slight premium to book value. Triton International, an almost identical company, was acquired by a private equity buyer in April 2023, for a price to book multiple of 1.8x. This suggests that there could be material upside to the current offer.

Tailings retreatment is a relatively high return, low risk business:

Pan African Resources (PAN) is increasingly becoming a tailings retreatment business. Within the next 14 months PAN will produce 45% of its targeted 220 000 ounce (oz) annual gold production, from its tailings operations in Barberton, Evander and now at Mintails, west of Johannesburg. It will be one of the world’s lowest-cost gold producers, and should generate a return on equity in excess of 25%.

Mintails- Cash Machine:

In October 2022 PAN acquired the Mintails surface deposit, which contained 2m oz of gold, for a bargain $2.8m, or $1,33 per oz. Construction of the retreatment plant has commenced. It will cost R2.5bn, and will reach steady state production by December 2024. It is expected to produce 50k oz per annum at an all-in-sustaining-cost (AISC) of $914 per oz, for the 13 year life-of-mine. It should generate an un-leveraged 23% IRR on the current gold price, with an attractive 3.5 year payback period. The project has been fully financed, and has been partially hedged with a forward gold sale. A study is currently underway to assess the feasibility of extending the life-of-mine to 21 years.

Recent Results:

Results for the 12 months to June 2023 were impacted by lower production volumes. The Barberton underground operations were temporarily impacted by a switch to continuous-operating-cycle mining. The switch should improve future production efficiency. Gold produced declined by 14.8% to 175k oz. Revenue declined by 14.8% to $322m. EBITDA declined by 16.8%, due to a 3% higher AISC. HEPS declined by 19.38% to 3.15 US cps. Happily, guidance is for a much improved 2024 financial year, with 185k oz production forecast.

Omnia manufactures and distributes fertiliser and explosives. It has a global footprint, and is well positioned to benefit from two powerful macro tailwinds:

Macro Tailwinds:

• Population Growth and Food Security: The world’s population is expected to increase by 25% (to 9.7bn), by 2050. Increased population and improved living standards will require agricultural production to increase by 60% over this time-frame. Increased food production will be hampered by increasing vulnerability to climate change. Substantial investment is required in compound based and green fertiliser, in order to maintain current crop yields, and achieve production and food quality. (Omnia produces a unique granular fertiliser and provides value added agronomy services, throughout southern African, Brazil and Australia).
• Decarbonisation: To mitigate the effects of climate change, a net-zero carbon emissions by 2050 goal, has been set by 33 countries and the European Union. Demand for critical minerals used in green energy technologies is expected to expand sevenfold in the next decade. Optimising blast solutions will be critical to a decarbonised world. (Omnia provides a world leading dual-salt emulsion blasting product, and provides blasting services to mining clients across Africa, Canada, Australia and Indonesia).

Margin Enhancement Initiatives:

Management have a detailed plan to significantly enhance margins over the next two years:

• Agriculture: Cost optimisation will be driven through manufacturing and production efficiencies, supply chain optimisation, as well as distribution and logistics efficiencies. Growth will be enhanced through the roll-out of the AgriBio business to international markets, as well as speciality fertilisers in South Africa. Volume growth in southern Africa will be achieved through increased AgTech services.
• Mining: Cost optimisation will be achieved through improved asset utilisation, production efficiency and expense management. Rationalisation of the West Africa operations will cut costs materially. Growth will be achieved through new distribution joint ventures in Canada, Indonesia and Australia. A new explosives product, AXXIS Titanium, will also be rolled out globally.

Recent Results:

Results for the 12 months to March 2023 demonstrated improved resilience. Despite lower volumes from adverse weather events, revenue increased 24% on the prior year, buoyed by higher commodity prices in the first half. Operating profit increased by 19% after accounting for losses on the disposal of the Zimbabwean Joint Venture. Profit for the year declined by 15% after materially higher tax charges. HEPS increased by 1% to 739c. Dividends were increased by 36% to 375cps. The company has zero debt, and generates a 12% return on average equity. Omnia plans to repurchase 10% of its outstanding shares, within the next 12 months.

Textainer leases out containers to shipping companies. It is the second largest container leasing company in the world. It has been a fantastic investment for the fund:

Share Repurchases:

Textainer generates stable and resilient cash flows. Almost all of Textainer’s container fleet is leased out under fixed-rate, long-term, lease contracts. Gearing is high at 2.5x net debt to equity, but the average remaining lease and debt tenor is closely matched, at 5.7 years. (Effective interest rates are fixed at 3.22% pa). As capex opportunities have been limited, shareholder returns have been driven by share repurchases. Over the last 2.5 years, Textainer has repurchased 32% of its common shares. It plans to repurchase a further $139 million worth of shares (10%), over the next 12 months.

Demand for containers- driven by Greenhouse Gas Emission Regulation:

Member states of the International Maritime Organization have agreed to reach net-zero greenhouse gas emissions (GHG) by 2050. (Indicative checkpoints call for reducing total shipping GHG emissions by 30% by 2030, and for 80% by 2040, both relative to 2008). In order to reduce emissions, container shipping companies are being forced to reduce average sailing speeds. This reduces shipping capacity. To maintain existing capacity companies have ordered a significant number of new vessels. These vessels will be delivered over the next several quarters, and will drive expected demand for new container leases.

Recent Results:

Results for the second quarter to June 2023 were marginally softer, compared to the first quarter. Average fleet utilisation remained at 98.8%, but gains on sale of end-of-life containers decreased by 16%. Lease rental income decreased by 1% to $192m. Income from operations decreased 3% to $98m, adjusted net income decreased 4% to $51m. Adjusted EPS decreased 2% to $1.20.

Afrimat has made a series of acquisitions that have created significant shareholder value. Its strategy is to buy good companies, that have been poorly managed. It has a track record of buying them cheaply, and integrating them well. Its latest acquisition seems inspired:

Growth through Acquisition- Lafarge South Africa:

Afrimat has entered into a share purchase agreement with the owners of Lafarge South Africa (LSA). It has offered to pay $6m (R110m) for LSA, and settle its holding company loan account of R900m. LSA has R1.4bn in net assets, and generates a normalised EBITDA of R350m per annum. The replacement costs of the LSA asset base is estimated at between R10bn and R15bn. (The transaction is subject to the normal competition and regulatory approval). LSA produces aggregates, concrete, cement and fly-ash. The largest contributor to LSA’s earnings is cement, which at 2mt per annum accounts for 20% of the existing SA cement market. LSA will vertically integrate into Afrimat’s existing ready-mix and concrete blocks and bricks business. There seems to be little to no geographic overlap between LSA’s and Afrimat’s opencast lime and aggregates operations. Although construction activity is subdued, this acquisition positions Afrimat well for future recovery.

Core Business- Bulk Commodities:

Afrimat generates most of it operating profit (82%) from bulk commodities. The majority of this comes from the Demaneng iron ore mine, but Jenkins iron ore and Nkomati anthracite mines are ramping up volumes. These mines will be significant earnings contributors in FY2024. Construction materials revenue growth is flat, with pressure on operating margins. The future metals and materials division will add material value in the medium term, as the Glenover vermiculite and super phosphate operations start production.

Recent Results:

For the 12 months to February 2023 Afrimat generated a 24% Return on Net Operating Assets. Revenue increased by 5% but operating profit declined by 13% on lower iron ore prices and higher costs (Jenkins and Nkomati mines ramping up production front-loaded costs). Headline earnings per share decreased by 15.7% to 457.6 cps. HEPS have grown at 18.24% CAGR over the last 5 years.

HCI is an investment holding company. It owns a large portfolio of assets, the most interesting of which is Impact Oil and Gas:

Impact Oil and Gas (49.9%):
Impact Oil and Gas (Impact) is a UK based hydro-carbon exploration company, which owns several deep water African oil and gas prospects. Its strategy is to partner with super-major oil companies, with technical and financial capability, to develop prospects into feasible projects:

• The Orange Basin Venus Project: Impact owns a 20% Joint Venture interest in two exploration prospects. These are situated in the Orange Basin, off the southern coast of Namibia. In both license areas, Impact has partnered with TotalEnergies (the operator), QatarEnergy and Namcor. The JV is collectively named the Venus Project. Last year Impact announced that a world-class light oil and associated gas field was discovered by the Venus Project. This discovery is believed to be at least 2bn barrels, and could increase with further exploration drilling, currently underway.

• Drilling Update: The Vantage owned drillship Tungsten Explorer, has completed the Venus-1A appraisal probe, about 13km north of the original discovery well. According to Upstream, an oil and gas exploration publication, the well hit the reservoir as expected. TotalEnergies has chartered the semi-submersible Deepsea Mira for an Exploration and Appraisal (E&A) Programme, which will start operating in July 2023. The ship will perform a production test on the Venus-1A site in Block 2913B. Once the Tungsten Explorer completes operations at Venus-1A, it will head west into Block 2912 to drill the critical Nara-1 probe, targeting the potentially massive western extension of Venus. If successful, the drillship will perform a drill stem test to measure well-flow-rates. It will then drill the Nara appraisal well, and do a drill stem test. After the Venus-1A production test the Deepsea Mira will perform a production test on the original Venus-1X discovery well. In April HCI invested R375m into Impact, to fund their portion of the current E&A Programme. It has committed to invest a further R530m by August 2023.

• Feasible Project- Sale: The E&A Programme should be completed by October 2023. If the Venus project is proved feasible, Impact intends to sell its stake. Proven reserves are roughly worth $3 to $5 per barrel. At 2bn proven barrels and a $4 valuation, HCI’s effective 10% interest in the JV could be worth R15bn. HCI’s current market-cap is R19bn.

Listed Holdings:
HCI owns the following listed companies: Tsogo Sun Gaming (49.7%), Southern Sun Hotels (40.5%), eMedia Holdings (80.3%), Frontier Transport (82.2%), Deneb Investments (85.3%) and Platinum Group Metals (25.1%).

Unlisted Holdings:
HCI owns the following unlisted companies: HCI Coal (100%), HCI Properties (100%), Karoshoek (10%), Impact Oil and Gas (49.9%), Gripp Advisory (75%), BSG (40%), Alphawave (42.3%) and La Concorde (89.4%).

Recent Results:
For the year to March 2023 income increased by 20%. EBITDA increased by 13% to R5.639bn. Headline earnings per share increased by 55% to 2051c. Hotels, gaming and coal were the largest contributors to growth, with hotel and gaming activity now close to pre-COVID levels. HCI’s stated NAV is R224.66 per share.

Gold- Central Bank Buying:
The gold price is close to an all-time high. Chinese and Russian central banks have been notable buyers of gold. The move to diversify reserves into gold, seems to be a sustainable trend.

Converting mine-waste into gold:
DRD Gold is a capital-light, surface tailings recovery business. It uses a hydro-mechanical process to recover gold from old mine dumps, situated east and west of Johannesburg. DRD Gold produces 170k ounces of gold per annum, at an all-in sustaining cost of $1385 per ounce. Sibanya Stillwater owns 50.1% of DRD Gold. Though a series of acquisitions, Sibanya has built up a vast gold and platinum resource base, with valuable mine-waste assets. DRD Gold is well positioned to benefit from the development of these mine-waste assets, in the future.

Reducing Reliance on Eskom:
DRD is investing in renewable energy infrastructure. The installation of two 22KV lines that integrate Ergo and Brakpan/Withok tailings storage facility, into a dual Eskom and solar grid, is now complete. So is the medium voltage sub-station, through which surplus power will eventually be delivered back into the grid. The first phase of a 20MW solar farm, comprising 44 000 solar panels, will be fully commissioned by June 2023. At the City Deep pumping station, the unreliable City Power supply line has been abandoned, and a new cable directly to an Eskom sub-station has been installed. This has improved power supply, although the pumping station is still impacted by load curtailment, post stage 4 load-shedding.

Recent Results- Q3 of FY2023:
The operating update for the 3 months ended March 2023 was pleasing. This was largely due to a 11% increase in average gold price received. Gold production increased by 4% to 43k ounces (compared Q2), derived through a 13% increase in yield, and an 8% volume decline. Adjusted EBITDA increased 54% to R448m. Cash operating cost remained flat at $1208 per ounce. Cash on hand increased by R160m to R2.552bn. External borrowing remains at zero.

Master Drilling owns a fleet of 140 raise-bore drill rigs. It hires these out to blue-chip mining companies on a contract basis, and supplies support (optimisation and safety) services. The knowledge derived from developing raise-bore technology, and supplying support services in multiple mining jurisdictions and commodities, provides a competitive advantage. (Its competitors are mainly manufacturers who sell equipment). Master Drilling measures its performance in terms of Average monthly Revenue per Operating Rig (ARPOR), and Fleet Utilisation. Compared to the prior year these metrics improved dramatically in 2022, with fleet utilisation at 77% and ARPOR at $155k, (70% and $136k).

Mechanised Mining:
Raise-bore drill rigs are used to drill ventilation shafts, for deep-level mines. A pilot hole is drilled from the surface, the raise-bore rig is then assembled underground, and the shaft, typically 4.5m in diameter, is drilled up to the surface. This technology is materially safer, and more efficient, than traditional blast-and-drill techniques. Master Drilling also owns and operates a fleet of 61 slim rigs (used in mining exploration), and a number of mobile-tunnel-boring machines. These are ideal for drilling incline shafts.

Digital Mining:
Master Drilling is increasing the tech-solutions and digital services, it provides to its fleet-hire customers. Data collection from drilling activities will be a key value enhancement. It is also benefitting from investments in subsidiaries A&R Group and AVA Solutions. A&R Group provides proximity detection systems. These prevent unsafe interactions between underground workers and machinery. (It currently monitors 250k people and items of equipment in Southern Africa and Mexico). AVA Solutions provides data collection mine management solutions, specifically load-and-haul tracking solutions for opencast mines.

Diversified Order Book:
Master Drilling has a diversified order book. As at December 2022, pipeline revenue was $570m, with $178m in committed orders. Of the committed orders 23% were from copper miners, 37% PGM, and 17% Gold. Revenue in 2022 was 40% derived from Africa, 31% from South America, 17% from Central and North America, and 12% from India, Europe and Australia. (Operating profit margins are highest in Africa at 21%, due to limited competition).

Recent Results:
For the 12 months to December 2022, revenue increased by 32% to $226m, and headline earnings per share increased by 10.1% (to 14.2 USD cents per share, or ZAR232.5 cps). Operating costs increased due to higher staffing requirements. Finance costs increased on higher debt levels, from expansion capex, and higher rates. Master Drilling generates a 12% Return on Equity, with little debt, at 8.2% of equity. A maiden dividend of ZAR 47.5 cps was declared.

Blue Label distributes digital products, primarily pre-paid airtime and electricity. It trades on 4 times normalised earnings*, and generates a 22% return on equity.

Shadow Bank:
Blue Label sells products for cash, and pays its suppliers on extended terms. Much like an insurance company, a pre-payment float can be invested to enhance returns. Over the last few years Blue Label’s float has been used to buy a controlling interest in Cell C. It plans to increasingly use the float to fund micro-loans, through a partnership with Capitec.

Cell C- Mobile Virtual Network Operator (MVNO):
Cell C has been recapitalised and restructured. Lower debt levels, together with lower costs from the migration of its clients onto MTN’s network, will result in Cell C’s return to profitability. Its MVNO joint venture with Capitec Connect, which sells airtime and data to Capitec’s 19m online customers, is expected to drive significant unit and margin growth. It plans to sell value-added data services to Capitec, which gives valuable insight into customer behaviour, resulting in better lending decisions.

Accessing the Informal Economy:
Blue Label allows the informal economy, to acquire vouchers with cash, and transact digitally. Its Aeon payments platform with integrated Postilion switch, links financial institutions, municipalities, and telco’s with thousands of contracted merchants. Cash customers purchase Blue Label vouchers from merchants’ point of sale system. Customers then use vouchers to purchase digital products, using a mobile device. Digital product include airtime, electricity, sports bets, transport and event tickets. This payments network has significant scale economies, and network effect benefits. As the platform gets larger, unit costs decrease to such an extent that competition becomes increasingly difficult. The platform becomes more valuable to customers as more merchants are added, and more digital products become available. This provides a sustainable competitive advantage. Cell C’s spectrum, in a bandwidth constrained world, is a valuable cornered resource. This also provides a sustainable competitive advantage.

Recent Results:
For the 6 months to November 2022 Revenue increased by 9%, (revenue from pin-less top-ups increased 4%, electricity increased 7%, gaming revenue increased 58% and ticketing revenue was up 152%). Gross Profit and Normalised Earnings Per Share (excluding IFRS adjustments relating to the Cell C recapitalisation)* increased 13%.

Hudaco is a value added distributor of imported industrial products. It generates a 22% return on equity.

Its businesses serve markets that fall into two primary categories:

• Consumer: It supplies products focused on the automotive aftermarket, power tool and fasteners, data networking, gas and outdoor, security and communication, and battery and sustainable energy markets.
• Engineering consumables: It supplies products focused on bearings and belting, electrical power transmission, diesel engine, hydraulics and pneumatics, specialised steel, thermoplastic fittings, and filtration markets.

Sustainable Competitive Advantage:
The sale of replacement parts and products, with a high value added component, leads to multiple repeat orders, with high margins. Hudaco has a significant scale advantage over its competitors. Its balance sheet size (R6bn), and wide branch network, allows for high stock availability and extensive product range, at locations close to customer demand. Its limited need for fixed asset investment, makes Hudaco a resilient high return company.

Recent Results:
Results for the 12 months to November 2022 were excellent. The synergies and consolidations implemented over the last two years have resulted in significant market share gains. Compared to the prior period, turnover increased by 12% to a record R8.2bn. Operating profit increased by 23%, headline earnings per share by 22%. Final dividends per share increased by 20%, after R133m share repurchase.

HCI is an investment holding company. It trades at a significant discount to its intrinsic value. Over the next few years this discount will be narrowed through the sale its major Namibian oil and gas discovery- Venus, and the unbundling of its listed holdings.

Impact Oil and Gas:

HCI owns a 49.9% interest in Impact Oil and Gas. Impact is a UK based hydro-carbon exploration company. It owns a portfolio of high quality, deep water prospects, off the coast of Africa. Its strategy is to partner with large oil and gas companies (with technical and financial capability), to develop prospects into feasible projects:

• Namibia- Venus has made a major oil and gas discovery: Impact owns a 20% Joint Venture interest in the Block 2913B license area, and a 18.89% interest in the adjacent block 2912, in an area known as the Orange Basin. In both license areas, Impact has partnered with TotalEnergies (the operator), QatarEnergy and Namcor, collectively named the Venus Project. Last year Impact announced that a world-class light oil and associated gas field was discovered by the Venus Project. There are early indications that this could be a multi-billion barrel discovery. In the next few months the Tungsten Explorer drill-ship will drill one more appraisal well, and re-enter the Venus-1X exploration well, to run a test and acquire additional seismic data in Block 2912. This work will allow the JV to better understand the scale of the Venus discovery, and the degree it extends west into Block 2912. Impact has stated it intends to sell its 20% JV stake, once this process is complete.
• South Africa- Brulpadda and Luiperd are major gas-condensate discoveries: Impact owns a 36% interest in Africa Energy Corp which owns an interest in these two major gas-condensate discoveries, situated off the southern Cape coast. A Production Right application has been made to government. It plans to supply gas to the South African domestic market, either piped directly to Mossel Bay, or Gqeberha (PE). The domestic supply of gas could have a transformative impact on South African energy security. Impact also owns two licences in the Natal Trough, the Tanskei and Algoa prospects, covering 124k km². The 3D seismic acquisition program conducted by JV partner Shell, has been halted by a green activist’s interdict. Resumption of exploration activity is pending a court decision.
• Senegal- Impact and JV partner CNOOC have identified multiple exciting drill-worthy prospects off the coast of Guinea-Bissau and Senegal. Exploration activity awaits the ratification of the cooperation treaty between the two countries.

Listed Holdings:
HCI owns the following listed companies: Tsogo Sun Gaming (49.7%), Southern Sun Hotels (40.5%), eMedia Holdings (80.3%), Frontier Transport (82.2%), Deneb Investments (85.3%) and Platinum Group Metals (25.1%).

Unlisted Holdings:
HCI owns the following unlisted companies: HCI Coal (100%), HCI Properties (100%), Karoshoek (10%), Impact Oil and Gas (49.9%), Gripp Advisory (75%), BSG (40%), Alphawave (42.3%) and La Concorde (89.4%).

Recent Results:
For the 6 months to September 2022 income increased by 30%. EBITDA increased by 18% to R2.516bn. Headline earnings per share increased by 312% to 1115c.

Reunert generates at 16% Return on Equity, with no debt. It trades on a 6% dividend yield.

The renewable energy market is expected to grow by at least 35% per annum, over the next 5 years. Eskom’s collapse has resulted the embedded (private) generation cap being lifted to 100MW, and a surge in investment. Windows 5 and 6 awards of the REIPP program, are also fuelling growth. Although competition is intense, Reunert is well positioned to benefit:

Renewable Energy:

Reunert has a comprehensive eco-system of renewable energy solutions:

• Terra Firma Solutions is a market leader in Engineering Procurement and Construction (EPC) of solar energy projects. They focus on commercial scale rooftop, parking and ground mount systems between 200kW and 100MW.
• Blue Nova Energy is the market leader in renewable energy storage solutions. They distribute lithium ion phosphate battery products ranging between 12V and 800V.
• CBI Energy provides energy-efficiency devices and network solutions.
• Apollo Energy is the market leader in wheeled energy solutions across Eskom’s grid.
• Build Own and Operate renewable energy projects. Reunert has invested in 32MW of projects at attractive Internal Rates of Return. Its ungeared balance sheet provides significant opportunity to drive growth across their renewable energy platform.

Electrical Engineering:

Strong market conditions are expected for the circuit breaker and cable manufacturing businesses. Earnings growth will be enhanced by improvements in manufacturing efficiencies and a stable labour relations. Wage negotiations for FY23 and FY24 are now complete.

The rest of the business:

• ICT: Demand for Nashua office automation equipment and Quince’s asset-backed finance remains robust, despite the loss of voice minutes and disruption from continued load-shedding. The IT solution and systems integration business is befitting from an enhanced solutions range. The Last-Mile-Broad-Band-Connectivity business is benefitting from geographic expansion.
• Applied Electronics: A record order book exists for defence businesses. Fuchs, which manufactures electronic fuses for artillery shells, is at full production capacity for FY23. Reutech Radar Systems and Etion Create are benefiting from easing of electronic component supply constraints, and improved processing of defence export permits.

Recent Results:

For the 12 months to September 2022 revenue and operating profit increased by 16%. Headline earnings per share increased by 9% (after accounting for a loss on a put and call option structure, on a future JV sale). Free cash flow generation increased by 11%, 17% of capex was invested to maintain operations. The final dividend was increased by 8% to 224cps.

Companies that can consistently re-invest retained earnings at high rates of return, tend to be fantastic investments:

Mine-waste recovery generates high returns on net assets:
The capital intensity of securing mine-waste and installing metals recovery plant, is relatively low. No shafts need to be sunk, and no ventilation, haulage and water pumping systems are required. Operating costs are low. It requires relatively small labour and electricity inputs. Risks are also relatively low. Mine-dumps are easily measured and accessed. Supply risk is reduced by having multiple operating sites, and fixed price off-take agreements. Regulatory risk is low as operations normally occur at existing licensed mining facilities. There are also significant barriers to entry. This reduces competition for mine-waste supply. Substantial technical skill is required to design each processing plant, specific to each dump’s metallurgical composition. Operating ability is also required to maintain volume throughput, and consistently high recovery yields.

These 3 mine-waste recovery companies consistently generate high rates of return:

Jubilee generates an 18% return on net assets (from its existing PGM operations). Jubilee produces 1.2mt per annum of chrome concentrate from third party mine-waste, on a fixed margin contract. As a by-product from this process it produces 42k PGM ounces per annum, which it sells in the spot market.  In the next 12 months Jubilee will materially increase its production volumes. As the re-configured Inyoni plant ramps up to full production, 22% more PGM ounces will be produced. In Zambia, its Project Roan will increase copper production by 285%, and start producing cobalt from a secondary circuit. At current copper/cobalt prices, the payback period on Project Roan will be less than 2 years. Phase 2 of Jubilee’s copper strategy will see production increase from 10k tons per annum, to 50k tons by 2027.

Tharisa generates a 33% return on net assets. Tharisa’s new Vulcan fine chrome recovery plant produces 1.5mt per annum of chrome concentrate from mine-waste, sourced from their primary PGM operations. Recovery rates are expected to improve from 65% to 80% once full commissioning is complete. This will have a material impact on margins. Within the next 3 years Karo, Tharisa’s new open cast mine in Zimbabwe, will add another 500k tons per annum to chrome concentrate production. At this point Tharisa will be producing 350k PGM ounces per annum from a current base of 180k ounces, as well as significant quantities of nickel and copper by-products.

DRD generates a 21% return on net assets. DRD produces 170k ounces per annum of gold, by processing mine-waste situated near Johannesburg. Significant volume growth will be achieved through completion of phase 2 of the Far West Rand Recoveries project. This involves upgrading the existing tailings storage facility in collaboration with parent Sibanye-Stillwater, to create deposition capacity of 750k tons per month, commencing in 2026. The Driefontein 2 plant will be upgraded to a 1.2m ton per month facility by 2024. DRD and Sibanye are exploring ways to develop Sibanye’s extensive mine-waste assets, which include deposits high in uranium content.

Alviva has been a fantastic investment for the fund. It has grown HEPS by an average 39% per year, for 5 years (CAGR). It generates a 25% Return on Equity:

Market Dominance:

Alviva is the largest computer distribution business in South Africa. Trading under the brands Axiz, Pinnacle and Tarsus, it enjoys a dominant market position, which allows for strong pricing power and high margins. Despite a challenging operating environment, earnings growth has been achieved through the successful integration of recently acquired Tarsus, and strong demand for fibre-network, cloud, work-from-home, and cybersecurity products.

It also has following business segments:

• Services and Integrators: Datacenrix, Centravoice and DG- provide managed services, digital business and connectivity solutions.
• Renewable Energy: Solareff and Gridcars- provide commercial solar and battery installations, and electric vehicle charging stations.
• Applications and IP: Sintrex, Merlynn and SynergERP- provide management ERP software services, and artificial-intelligence and machine-learning technologies
• Financial Services: Centrafin- provides asset backed finance through a securitised (ring-fenced) lending book, funded mainly by third-parties.

Recent Results:

For the 12 months to June 2022 revenue increased by 57% to R23bn. EBITDA increase by 62% and HEPS increased by 91% to 545.4c. Debt to equity levels remain reasonable (at 59% excluding the securitised loan book) despite an excess inventory position at year-end, due to supply chain disruptions. (Alviva currently trades on 4x historic earnings, and is the subject of a non-binding expression of interest, which involves a potential takeover-offer and delisting).

Master Drilling owns and operates a fleet of 150 raise-bore drill rigs:

Global mining companies have started to expand existing operations. Master Drilling’s fleet utilisation (and revenue per operating rig) have increased dramatically:

Mechanised Mining:

Raise-bore drill rigs are used to drill ventilation shafts, for deep-level mines. A pilot hole is drilled from the surface, the raise-bore rig is then assembled underground, and the shaft, typically 4.5m in diameter, is drilled up to the surface. This technology is materially safer, and more efficient, than traditional blast-and-drill techniques. Master Drilling also owns and operates a fleet of 77 slim rigs (used in mining exploration), and a number of mobile-tunnel-boring machines. These are ideal for drilling incline shafts.

Digital Mining:

Master Drilling is increasing the tech-solutions and digital services, it provides to its fleet-hire customers. Data collection from drilling activities will be a key value enhancement. It is also benefitting from investments in subsidiaries A&R Group and AVA Solutions. A&R Group provides proximity detection systems. These prevent unsafe interactions between underground workers and machinery. (It currently monitors 250k people and items of equipment in Southern Africa and Mexico). AVA Solutions provides data collection mine management solutions, specifically load-and-haul tracking solutions for opencast mines.

Diversified Order Book:

Master Drilling has a diversified order book. As at June 2022, pipeline revenue was $541m, with $211m in committed orders. Of the committed orders 25% were from copper miners, 20% PGM, and 18% Gold. Revenue in H1 2022 was 39% derived from Africa, 31% from South America, 12% from Central and North America, and 18% from India, Europe and Australia. (Operating profit margins are highest in Africa at 23%, due to limited competition).

Recent Results:

For the 6 months to June 2022, revenue increased by 34% to $96.5m, and headline earnings per share increased by 47% (to 8.8 USD cents per share) on a healthy increase in the EBITDA margin (23.9%). Master Drilling generates a 15% Return on Equity, and has little debt.

Textainer generates a 20% Return on Equity, by leasing out containers to shipping companies:

Almost all (97%) of Textainer’s container fleet is under fixed rate long-term lease contracts. (The average remaining lease-tenor is 6.7 years, and average fleet life is 4.6 years). As long-term lease contracts generate stable and predictable cash flows, gearing is relatively high at 2.8x net debt to equity. Debt is either fixed rate, or hedged to fixed, with an average remaining tenor of 6 years, which matches lease-tenor closely. In addition to repurchasing 22% of its issued common shares, over the last 3 years, Textainer has invested heavily in new fleet capacity. As capex normalises, share repurchases and dividends are expected to increase. (The company has authority to repurchase another 8% of its issued common shares).

Current Market Environment and Outlook:

According to management:

• Although container demand has moderated from a record base, congestion and therefor utilisation, will remain elevated for the foreseeable future. Maturing leases continue to be renewed into life-cycle leases, with extended maturities through the remaining useful life of the containers.
• New container prices ($2600/CEU) remain materially above historic averages, and cost prices. Resale prices are underpinned by high new-build costs, strong demand and limited resale inventory.
• Reduced credit risk from customers should continue, as shipping lines lock in high freight rates in annual contracts, and optimise balance sheets with enhanced liquidity.
• Favourable market conditions are expected through 2022, due to congestion throughout the global supply-chain. Continued disruptions, including elevated strike activity, will delay a return to normal.

Recent Results:

Results for the second quarter to June 2022 were superb. Compared to the first quarter, lease rental income improved by 2% to$203m. Income from operations increased 7% to $123m, adjusted net income increased 8% to $73m. Adjusted EPS increased 10% to a record $1.63.

Hudaco is a value added distributor of imported industrial consumable products. Its businesses serve markets that fall into two primary categories:

• Automotive aftermarket, power tool and fasteners, data networking, gas and outdoor products, security and communication equipment and battery businesses. It supplies products into markets with a bias towards consumer spending.
• Bearings and belting, electrical power transmission, diesel engine, hydraulics and pneumatics, specialised steel, thermoplastic fittings, and filtration businesses. These supply engineering consumables, mainly to mining and manufacturing customers.

Hudaco is remarkably resilient. It consistently generates a high return on equity. Its resilience is derived from operating a diverse portfolio of businesses, across many sectors and industries. It adds value by keeping high levels of stock on hand (more than three months of sales) and giving its customers advice, and training where appropriate. Significant value has been created through acquisitions. Hudaco recently acquired Cadac (which distributes outdoor gas cooking and heating products) at an attractive valuation.

Recent Results:

Results for the 6 months to May 2022 were excellent. Improving mining, manufacturing and agricultural activity increased sales volumes significantly. Compared to the prior period, turnover increased by 12% to a record R3.8bn. Operating profit increased by 27%, headline earnings per share by 25%. Interim dividends per share increased by 25%, after significant share repurchases. Despite global supply chain challenges, management expect a stronger second half in line with historic seasonal trends, and a combination of acquisitive growth, increased dividends and share repurchases.

Alviva has received a non-binding expression of interest to acquire all of the issued ordinary shares, at R25 in cash per share. If the transaction is approved, the company will be de-listed from the exchange.

Afrimat has grown earnings per share by 32% per year, over the last 5 years. It has done this mainly through a series of superbly executed acquisitions:

Glenover: Afrimat recently acquired Glenover’s vermiculite and phosphate stockpiles. From these stockpiles Afrimat plans to produce 30k tons per annum of vermiculite. This is used in industrial fire protection, horticulture and insulation. It will also start producing 30k tons per annum of high grade phosphate, and 30k tons per month of single super phosphate, within the next 12 months. These are used as an agricultural fertiliser. Afrimat also plans to acquire the Glenover mining right. Increased supply from mining will allow it to invest in additional processing capacity, and produce significant quantities of nitro-phosphate and rare earths, over a planned 20 year life of mine.

Recent Results:
For the year ended February 2022, revenue increased by 27%, HEPS increased by 23% (with a 24% operating profit margin). Return on net operating assets was 33%, on a 12%net debt to equity ratio.

Transaction Capital has grown earning per share by 34% per year, over the last 5 years. It has done this mainly through the acquisition of WeBuyCars, but also through organic growth into adjacent businesses:

WeBuyCars: Currently selling 10k used cars a month. This equates to 10% of the total market. It is expanding its geographic footprint into secondary towns and cities. This should increase monthly volumes to 15k, within 12 months. Historically WeBuyCars sold used vehicles to motor-dealers. Sales are increasingly made to retail customers who also buy vehicle tracking, insurance and finance. These products are supplied by third parties who pay WeBuyCars a commission. Transaction Capital has now started a lending business called GoMo. This targets customers who buy good-quality older vehicles that traditional lenders refuse to finance. They anticipate the GoMo loan book to grow to R8bn within 5 years, with a 11% net interest margin.

TCRS: Currently acquires and collects non-performing loan portfolios in South Africa and Australia. As a result it has become an expert call centre operator. It uses dialling engine technology, voice recognition and AI algorithms to manage thousands of call centre operators, who work from home, in South Africa. This expertise is now being used to win customer care contracts in the UK and Europe, and should add an additional 20% to TCRS’s earning within the next 12 months.

Recent Results:
For the 6 month to March 2022 core headline earnings from continuing operations grew by 38% to R603m. Core headline return on average equity was 14%.

Textainer is the second largest container lessor in the world:
It has a relatively low risk business model. It generates predictable cash flows, with 96% of the fleet on long-term fixed rate leases. The average remaining tenor of the lease portfolio matches its debt maturity profile, at 6.5 years. (The fleet has an average age of 4.5 years). Shipping line counter-party risk has reduced through industry consolidation, and record cash flows.

Shareholders continue to benefit from a strong container shipping market:
Significant revenue growth since 2020 has been driven by organic fleet growth, as well as higher fleet utilisation and rental rates. Profitability has also been enhanced through cost optimisation and debt refinancing. Over the last 2.5 years Textainer has repurchased 19% of its outstanding common shares. As capex normalises, and further balance sheet optimisation occurs (additional 7% preferred shares issued), common share repurchases are expected to increase at an even greater rate.

Current Market Environment:
Strong Lease-Out Market: although container demand has moderated, lease-out terms have remained favourable, with attractive rates and long contract tenors. Maturing leases continue to be renewed into life-cycle leases (13 years), indicating strong demand and limited supply.
Container Prices are Historically High: New container prices ($3k/CEU) remain materially above historical averages. Resale prices remain elevated due to high steel prices and limited inventory. This underpins the residual value of the fleet, and provides a good inflation hedge.
Outlook: Strong market conditions are expected by management in 2022, resulting from continued supply-chain disruptions, and stable consumer demand.

Recent Results:
First quarter results to March 2022 were good. Lease rental income increased by 17% on Q1 2021. Adjusted EBITDA increased by 19%. Adjusted net income per diluted share increased by 28%. Annualised Return on Equity was 19%, with net debt to equity at 2.8x. Textainer trades on a 28% Free Cash Flow Yield.

Master Drillings is well positioned to benefit from a sustained period of new investment in mining capacity. The last ten years has seen a historic under-investment in new mines. This has resulted in supply shortages, and surging commodity prices.

Fleet Hire:
Master Drilling owns and operates a fleet of drill rigs. These rigs are used to drill ventilation and incline shafts for deep level mines. It services a global blue-chip customer base, with a diversified commodity exposure. Raise bore drilling technology is more efficient and cost effective, than traditional blast and drill techniques. Mobile Tunnel Boring Machines are ideal for drilling spiral incline shafts. Master Drilling has spent the last 8 years investing in fleet capacity, it is now set to benefit from increasing fleet utilisation, and revenue per operating rig.

Capital Light Growth- Digitisation:
Master Drilling plans to reduce its capital intensity by increasing its digital services to its fleet hire customers. Data collection from drilling activities will be a key value enhancement in future. It will also benefit from investments in subsidiaries A&R Group and AVA Solutions. A&R Group provides proximity detection systems that prevent unsafe interactions between underground workers and machinery. It currently monitors 250k people and items of equipment in Southern Africa. AVA Solutions provides data collection mine management solutions, specifically load and haul tracking solutions.

Order Book:
Master Drilling has recently won some key contract awards in the Platinum Group Metals (PGM) mining sector in South African, and with Chilean copper mines. As at December 2021, pipeline revenue was $507m with $238m in committed orders. Of the committed orders, 24% were from PGM miners, 19% Copper and 19% Gold. (Revenue in 2021 was 38% derived from Africa, 32% from South America, 11% from Central and North America, and 19% from India, Europe and Australia).

Recent Results:
For the year to December 2021, revenue increased by 40% to $172m, and headline earnings per share increased by 396% to 12.9 US cents per share.

Scaling to Tier One:
Tharisa currently operates a single low cost open-pit mine, near Brits. It produces 165kpa PGM ounces and 1mtpa of chrome concentrate. The first phase of its new project in Zimbabwe, is in now in development. Within the next two years Tharisa plans to produce a total 350kpa PGM ounces and 2mtpa of chrome concentrate, at one of the lowest cash costs per ounce in the industry.

The Karo PGM Project:
Phase 1 of the project will result in a large scale open-pit mine, with a 20 year life. The mining lease sits on a tier one orebody, with an initial open-pit resource of 152 Mt containing 9.97 Moz at 2.04 g/t of 6E PGM, this includes Copper and Nickle. At current PGM prices, the Karo phase 1 project has a post-tax NPV of $770.4m, or 47.6% IRR. Tharisa has issued shares to value of $27m (4.85% dilution) to increase its project shareholding to 66.3%. (The Zimbabwean Treasury has a free 15% carry). Peak non-recourse funding will be $310m, serviced from existing free cash flow of $120mpa. Risk will be mitigated through using a third party mining contractor, and the fact that the project has been included in a Special Economic Zone, with National Project Status.

Special Economic Zones:
Implats, Amplats and Sibanya-Stillwater successfully produce a combines 890kozpa in special economic zones, in Zimbabwe. Operations with special economic zone status are allowed to operate through USD bank accounts. In addition they have reduced corporate tax rates (15%), exemption from non-residents withholding tax on fees, royalties and dividends, as well as duty free importation of capital equipment. Selene Chrome, an existing Tharisa chrome producer, has been successfully operating at the Karo site, within these parameters.

Sustained High PGM Prices
With Russian sanctions, and increasing demand from hydrogen fuel cell applications, PGM producers may enjoy elevated prices, for a sustained period. Tharisa is well placed to benefit.

Hosken Consolidated Investments (HCI) is an investment holding company. It currently trades at a 42% discount to Net Asset Value. HCI has an interesting portfolio of assets with strong cash generating ability. These assets range from hotels and casinos, to coal mines and palladium development assets. Most excitingly it owns 49% of Impact Oil and Gas:

Impact Oil and Gas:

Impact owns a number of oil and gas exploration assets situated off the coast of Africa. The most interesting exploration asset is a 20% interest in the Venus-1X exploration well. On the 24^th of February 2022 Impact announced its partner, Total Energies, had “encountered a high-quality, light oil-bearing sandstone reservoir of Lower Cretaceous age, with 84 meters of net oil pay” There are early indications that this reservoir could be a multi-billion barrel oil discovery:

The Venus discovery sits in the Orange Basin, approximately 290 kilometres off the coast of Namibia. The well was drilled to a total depth of 6,296 metres, by the Maersk Voyager drillship. Total Energies owns a 40% interest, Qatar Energy owns 30%, and the Namibian government owns 10%. Impact also holds an 18.89% working interest in the adjacent Block 2912 which covers approximately 8,215km², in water depths up to 3,000 metres.

Textainer generates a 22% Return on Equity. Profits are surging on higher fleet growth, improved utilization, and higher rental rates. It trades on an attractive 17% Free Cash Flow yield.

Textainer leases containers to shipping lines, on long term fixed-rate operating leases. (It is the second largest lessor in the world, with an 18% market share). Textainer operates a global network of 14 offices and 400 depots. It owns 4.3m (mainly dry standard) containers, at an average age of 4.5 years. (It generates 45% of expected total returns from initial leases, 30% from mid-life lease renewals, and 25% from sale into the static storage market, at the end of the 15 year lease life).

Shipping Boom- Lasting Benefit:

Supply-chain disruptions have caused a shortage of container shipping capacity. Freight rates are at record highs. During 2021 Textainer invested aggressively in new containers, increasing the fleet size by 18%. Most significantly, strong pricing power has allowed it to increase average initial lease duration to more than 12 years. (Historically initial leases were signed for between 5 and 7 years). With continued supply chain disruptions expected in 2022, and significant delivery of new container ships expected in 2023 and 2024 (needing more leases), Textainer should enjoy a lasting benefit from the current container shipping boom.

De-Risked Business Model- Industry Consolidation:

In 2016 Hanjin, a large Korean shipping liner went bankrupt. In the ensuing chaos, a wave of consolidation occurred:

• Shipping Lines– Improved credit quality: The top 10 shipping lines now account for 85% of market share, facilitating improved discipline and capacity management. (Maersk, MSC, Cosco and CMA account for 57% of the market). The resultant higher freight rates and improved financial performance has reduced cyclicality, and counter party risk for lessors.
• Lessors– More rational capital allocation: The top 5 lessors now account for 85% of the market share. Continued prudent container investment from industry participants is anticipated, resulting in improving lease quality and stable long term returns, with less yield volatility.
• Manufacturers– Improved economies of scale and coordination by Chinese suppliers, has resulted in improved production discipline, and reduced container price volatility.

Balance Sheet Optimisation- Increasing Dividends and Share Repurchases:

Textainer has a solid balance sheet. Debt to equity is at a moderate 3x, with 7x EBITDA to interest cover. Fixed rate debt represents 89% of total debt which closely matches 88% of the fleet under fixed rate long term lease contracts. Similarly, debt maturity profiles closely match remaining lease terms of the lease portfolio. Textainer has repurchased 16% of its issued ordinary share capital over the last 2 years, and has started paying a quarterly dividend. Textainer plans to optimise the balance sheet further by issuing additional preference shares, and accelerating ordinary share repurchases.

Recent Results:

Third quarter results to September 2021 were excellent. Lease rental income increased by 31% on Q3 2020. Adjusted EBITDA increased by 55%. Adjusted net income per diluted share increased by 271%.

Jubilee recovers metals from mine-waste. It generates at 35% Return on Equity with no debt. Jubilee’s Zambian Copper Project has started production. It will be extremely profitable.

Ingenious Business Model:
Compared to deep-level mining, metals recovery from mine-waste is a low risk, high return business. Mine-dumps are easily measured and accessed. It requires relatively small labour and electricity inputs. Returns are high as the capital intensity of securing mine-waste and installing processing plant, is relatively low. Competitive barriers to entry are high, as significant technical ability is required to design each processing plant, specific to each dump’s metallurgical composition, and then ensuring volume efficiency. Supply risk is reduced by having multiple operating sites, and fixed price off-take agreements. Regulatory risk is limited as operations occur at existing licensed mining facilities.

Jubilee owns and operates four mine-waste processing plants, situated on the Western Limb of the Bushveld Complex. It processes 250kt per month of feedstock secured through multiple long term fixed price offtake agreements. It locks in a small but predictable margin, by selling the primary chrome concentrate product, also on long term fixed price offtake agreements. It sells the secondary PGM product in the spot market. Jubilee currently produces 750kt pa of chrome concentrate, and 50koz pa of PGM. Jubilee should produce more than 1mt of chrome concentrate and 67koz of PGM in FY22:

• Western Limb (Brits): In September 2021 the Inyoni plant increased feed processing capacity by 45%, to 75ktm. It has been reconfigured to process a variety of third party feed sources. (Inyoni produced all of FY21’s PGM). Windsor Chrome acquired in 2019, has 60ktm processing capacity and has recently signed a three year ROM feed stock offtake agreement. Windsor 8 commenced operations in November 2020, it processes 35ktm of feedstock in a JV with Northam Platinum. OBB Chrome fully commissioned in October 2021 processes 80ktm, with four integrated chrome recovery circuits.
• Eastern Limb (Lydenburg): Two long term PGM supply agreements were secured in 2021. Both mine-dumps contain high Rhodium content LG6 reef. This feedstock will be trucked 400km, and processed by Jubilee plants in the Western Limb. A decision to commission a processing plant on the Eastern Limb is pending.

The Green Energy Transition and Copper Prices:
Global electric-vehicle sales are expected to be more than 15m units by 2030, from a current 3m. Each electric vehicle requires about 80kg of copper, four times more than a conventional vehicle. Goldman Sachs expects the copper market to remain in a long term supply deficit, and the copper price to be more than $15kt by 2025.

Jubilee plans to produce 25kt pa of copper cathode within the next four years in Zambia. It has acquired the Sable Refinery, and has contractually secured over 600mt of copper mine-dumps with various JV partners. As a by-product it will also recover cobalt, zinc, lead and vanadium pentoxide. In August 2021, Jubilee signed an agreement with Mopani Copper Mines, which is operated by the Zambian government. This agreement provides Jubilee access to Mopani’s refinery at Kitwe and offtake from four tailings dams. Jubilee needs to recapitalise and refurbish the refinery:

• Southern Refining- Project Roan: Sable Refinery situated at Kabwe with concentrator and feedstock, with an additional concentrator and feedstock at Ndola. It has commenced production, and will reach steady state of 12ktpa by Q3 2022. At a current copper price of $9700t, and a targeted cash cost of $4500t, Jubilee will make an annualised operating profit of $62m (before JV costs), on a $31m capital investment.
• Northern Refining- Project Lechwe: Feedstock secured at Mufulira and Luanshya, a concentrator and the Leopard (Mopani) Refinery at Kitwe is under construction, and will start producing in Q4 2022, reaching 2ktpa by Q3 2023.
• Northern Refining- Project Elephant: Feedstock secured at Kitwe, a concentrator is under construction, will start production in Q1 2023 and reach 3ktpa steady state by Q3 2023.

Recent Results:

For the 12 months ended June 2021, Jubilee increased revenue by 143%, and operating profit by 183%. Adjusted (headline) Earnings per share increased 163% to 46.7 cps. Jubilee ended the year in a net cash position, and generated a 35.4% Return on Equity. All future capital expenditure will be funded out of internal cash flow, and non-recourse project finance debt.

Improving Fundamentals:

Dry bulk freight rates, for small and mid-sized vessels, are at multiyear highs. Although shipping demand from China has cooled recently, demand from the rest of the world remains strong. The new build order book is the smallest it has been in decades. With limited vessel supply growth, freight rates are expected to remain attractive, over a potentially multi-year window.

Extracting Value from the Long Term Charter-in Fleet:

Grindrod Shipping’s long term charter-in fleet has 5 vessels with fixed price purchase options. These options, at current asset prices, are deep in the money. Two of the purchase options are exercisable in 2022. Management intend to take two Ultramax ships (5-6 year old vessels worth about $30m each) into the core fleet. Funding the purchase will be done with the sale of two 11-12 year old Handysize vessels. As the expected sale and purchase values will be similar ($18-$16m), a significant profit on the sale of vessels, and option value realisation (~$26m), will result from this transaction.

Recent Results:

For the 9 months to September 2021, Grindrod Shipping increased revenue by 65% to $366m, adjusted EBITDA by 247% to $131.5m and earnings per share increased to $3.44 from a loss of $1.31 per share. The company declared an interim cash dividend of $0.72 per share. Fourth quarter guidance suggests the company will earn at least $5.82 per share for the year, and pay out a total dividend of about $1.44 per share. Grindrod Shipping trades on 2.4x FY21 earnings, and a 10% dividend yield.

Hosken Consolidated Investments (HCI) is an investment holding company which trades at a 48% discount to Net Asset Value. Although debt levels are high, it has an interesting portfolio of assets with strong cash generating ability, and some near term catalysts that should unlock value:

Core Portfolio:

• Gaming and Hotels- HCI owns 47% of Tsogo Sun Hotels, Tsogo Sun Gaming, Vukani Gaming and Galaxy Bingo. Tsogo Sun Hotels is the leading hotels group, with over 100 hotels in Africa, Seychelles and the Middle East. Tsogo Sun Gaming has 13 casinos. Galaxy and Vukani have 23 bingo sites and multiple slot machine operations throughout South Africa.
• Media and Broadcasting- HCI owns 63% of eMedia Holdings which owns e.tv, enca, openview HD and esat.tv. The group is the largest television broadcaster in South Africa, with a 32% market share, which is benefitting from SABC’s demise.
• Transport- HCI owns 74% of Frontier Transport, a bus and coach business operating as Golden Arrow Bus Services.
• Diversified Investments- HCI owns 84% of Deneb which owns textile manufacturing and toy distribution businesses.
• Properties- HCI owns 100% of a property portfolio comprising conference and exhibition, industrial, inner city housing, mixed use precincts, office, student accommodation and retail properties.
• Energy- HCI owns 100% of HCI Coal and a controlling interest in Impact Oil and Gas. HCI Coal has two thermal coal collieries, situated near Bronkhorstspruit and Ogies. Impact Oil and Gas owns various offshore oil and gas exploration rights, around southern Africa.

Catalysts:

Hotels- easing of travel restrictions: hotel occupancy has increased from an average 5.2% in the 6 months to September 2020, to 21.9% for 2021. In October this year room sales had recovered to pre-pandemic levels of 59%. With severe cost cutting and current occupancy levels profitability will be materially improved in 2022.

Properties- Sale of various properties with a carrying value of R390m and R260m od associated liabilities will be sold in the next 6 months.

Energy- Impact Oil and Gas: Impact owns a 20% interest in the Venus-1x exploration well off the Namibian coast. Total Energies owns a 40% interest and is currently drilling the site. (The other partners in the project are Qatar Energy with 30%, and the Namibian government with 10%). According to management Venus-1x is a world-class, basin opening well which, if successful, could be transformative for Namibia, and HCI. Impact Oil and Gas also has a 50% working interest, together with Royal Dutch Shell, in Transkei and Algoa exploration rights. With 6000 square km of seismic testing about to commence, management believe significant potential could be proved in the South African Natal Trough.

Recent Results:

For the 6 months to September 2021 HCI increased group income by 63% to R8.6bn, EBITDA increased by 237% to R2.14bn. Debt at the holding company level is R2.5bn and will be repaid out of increasing dividend received from the investment portfolio.