Hosken Consolidated Investments (HCI) expects its profit for the year to end-March to plunge by at least 24.1% after a multimillion-rand knock from its oil and gas exploration investment.
The company, headed by trade unionist-turned-business person Johnny Copelyn, said on Tuesday it expected headline earnings per share, the main measure of profit, to come in 24.1%-34.1% lower when it reports its results this week.
“Headline earnings per share has been negatively impacted by equity losses of R528m in respect of Impact Oil and Gas, which included an effective R483m in equity losses in respect of its investment in Africa Energy Corp (AEC),” it said.
“AEC recognised $135m in downward fair value adjustments on its investment in the Block 11B/12B prospect offshore the South African south coast following the reassessment of its valuation model.”
HCI owns half of Impact Oil and Gas, which has big exposure in fledging SA and Namibian oil and gas industries. AEC is a Canadian oil and gas exploration company focused on SA. It is listed in Toronto and Stockholm.
Impact was awarded a technical co-operation permit in 2016 by the Petroleum Agency SA for the Orange Basin Deep block. Multinational energy giant TotalEnergies joined as operating partner in September 2017.
The company also holds an exploration right for the Transkei & Algoa blocks. Its most promising project to date is in Namibia. The HCI subsidiary has a 20% stake in two deep-sea blocks off the southern Namibian coast, known as Venus. The project’s operator, TotalEnergies, in 2022 reported it had discovered “significant quantities” of light, sweet oil and associated gas in the area.
Copelyn said in the group’s 2023 annual report that the development costs of these blocks “are way beyond the funding capacity of HCI and it is virtually impossible for HCI to remain with an effective 10% interest in them”. HCI has already invested $65m (R1.2bn) in Impact.
HCI is best known for its majority stake in gaming and leisure group Tsogo Sun, as well as other investments such as eMedia Holdings and Deneb Investments.
The trading statement also shows its hospitality business came under pressure in the year under review.
“Basic earnings per share decreased inter alia as a result of casino licence impairments of R2.7bn and property, plant and equipment impairments of R86m in respect of gaming operations. Higher interest rates and slower than previously forecasted income growth have negatively affected casino precinct valuations, resulting in the impairments above,” it said.
“Carrying values of casino licences were previously adjusted upwards as a result of the deemed acquisition of Tsogo Sun Ltd during the 2015 financial year and do not represent the cash cost of these assets.”
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