Minimum Disclosure Document

Minimum Disclosure Document

Cogito Alpha LS Prescient RI HF MDD March 2022-1

Holdings- Recent Results – March 2022

Master Drilling (MDI.SJ): 6.8% of the fund

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.

Tharisa Plc (THA.SJ): 7.3% of the fund

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.

Holdings- Recent Results – February 2022

Hosken Consolidated Investments (HCI.SJ): 7% of the fund

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 24th 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.

Holdings- Recent Results – January 2022

Textainer (TXT.SJ): 7% of the fund

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%.

Holdings- Recent Results – December 2021

Jubilee Metals (JBL.SJ): 7% of the fund

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.

Holdings- Recent Results – November 2021

Grindrod Shipping (GSH.SJ): 19% of the fund

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.SJ): 5% of the fund

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, enca, openview HD and 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.


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.