Anyone who doesn’t believe in the importance of timing should take a few minutes to consider Shoprite and former CEO Whitey Basson’s history. Part of Basson’s great success was his timing and the fact he turned every favourable development to his, and his company’s, huge advantage.
He made successful pioneering moves outside SA, developing a more impressive non-SA network than any other retailer. Before the implementation of tough new competition legislation, he was able to acquire his struggling major competitors for a song.
The extension of social grants and a comparatively stronger economy combined with outstanding management talent saw the Shoprite share price reach a record high of R260 in March 2018. At that stage it might have seemed Basson’s timing was a little off: he had, after all, sold 8.68-million Shoprite shares — almost all of his — back to the company in September 2017 at R201 a share just months after his retirement.
But by August 2018, it seemed the share price strength in early 2018 was a bit of a “dead-cat” bounce. Since that March peak the share price has been on a steady downward trajectory with little expectation of a reversal in the near future.
Less lucky with timing is Basson’s replacement, Pieter Engelbrecht who has suffered the huge discomfort of announcing consecutive years of record poor results.
Engelbrecht is picking up the pieces of Basson’s formerly grand plans — growth in Africa, creating massive distribution centres and extending the reach of IT systems. No doubt their “grandness” will become evident again. How quickly will depend on Engelbrecht and his relatively new leadership team as well as the macro trading environment.
Hedging is a difficult game that Gold Fields and Harmony Gold are now playing
If there is one guarantee in gold mining, it’s that hedging or selling the metal forward at agreed prices can make companies look like gifted heroes or just a little silly.
Hedging is a way to lock in prices and is very helpful when it comes to building projects or expansions, giving banks the confidence that there’s a guaranteed return on the gold sold.
For the finance department in the company itself, it’s a way of having a firm handle on revenue inflows, which is handy when dealing with large debt loads and new projects ramping up into full production.
When companies spot a perfect storm of a high gold price and a weak rand, for example, locking in that high rand gold price is a fantastic way to boost cash flows and the bottom line.
But getting it wrong makes investors grumpy.
Getting into a difficult position with a hedge book, which has claimed the scalp of more than one gold mining company, is a shame and costs investors heavily to extract the company.
AngloGold burnt through an estimated $6bn to get rid of a 12-million ounce hedge book that would have cost it $10bn in lost revenue, with all the positions being under water or less than the spot price for gold.
So, it’s with a lot of interest investors are watching Gold Fields and Harmony Gold, which are both running hedge books after many years of shunning the practice.
Ironically, Gold Fields CEO Nick Holland has historically been vociferously opposed to hedging, arguing no one could beat the market over the long term. Gold Fields has now hedged about half its production for 2019 and 2020.
Looking at the gold contracts versus the spot price, the hedge book was running at a negative $120m or R1.8bn at the end of June.
Harmony has a strict discipline of hedging one-fifth of its gold output. It’s done really well in the past couple of years from locking in high rand gold prices.
However, it too has been caught off guard by the gold price surging past $1,500/oz because of trade tensions between China and the US.
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