Commodity prices are unsustainable at these levels – Peter Major rings the alarm bells

Mining guru Peter Main is the go to man for something and every part resource-related, with the veteran mining director cautioning traders on a day the place Sasol, Northam and Impala Platinum introduced outcomes and earnings steering. Main famous that the drivers of Sasol’s earnings – chemical substances, was largely surprising by the market given the robustness within the oil worth for the reason that starting of the 12 months. Main additionally offers credit score to the useful resource counters administration, stating that that is essentially the most disciplined the administration groups have been since he bought to South Africa in 1982. Lastly, BizNews founder Alec Hogg and Main discuss in regards to the imminent company motion with BHP Billiton’s petroleum unit, which is a big contributor to the underside line of one of many world’s largest mining firms. – Justin Rowe-Roberts

Peter Main on Sasol’s monetary outcomes: 

There are many surprises within the outcomes. The debt got here in on the low finish of what they’d been telling us they have been making an attempt to do – R90bn as a substitute of R95bn. However we’ll take what we are able to get. And 75% of their earnings got here from chemical substances. They have been shedding a lot cash on chemical substances, however when the chemical substances turned – they made lots. So 75% of earnings on chemical substances, solely 25% on fuels. And we’ve had fairly excessive gasoline costs. In order that’s in all probability not going to get too significantly better going ahead. However the chemical substances appear to be actually doing nicely now.

On Sasol’s pivot from oil to chemical substances:

They at all times mentioned that they need to develop the chemical bit similar to they did later with explosives. But it surely’s one thing we’re not used to. We’re in fundamental commodities in South Africa. We’re used to gold, platinum, iron ore, manganese, coal and oil. So who’s our large chemical plant? It was actually them. The refiners weren’t listed – Engen was for some time. The chemical substances are the place Sasol sees its future, it desires to get out of constructing soiled coal into soiled oil and being the world’s best polluter.

In the marketplace reacting negatively to Sasol’s outcomes: 

I don’t know what it was anticipating. I feel it was extra on the oil worth coming off than on Sasol’s outcomes. When the analysts are saying that these outcomes are literally fairly good – there’s one thing driving the share worth down that we’re not conscious of. However I feel the world is kind of involved in regards to the oil worth. You’ve bought to recollect, this virus is large and it’s not going away and it’s not taking part in favourites. It’s taking on the entire world. And I truthfully haven’t imagined what’s holding oil above $70. We at all times speak about long-term averages. We talked in regards to the world’s best commodity that there’s no scarcity of – oil first and possibly iron ore second. Why is oil buying and selling above $50-$55 {dollars}? If that’s its long run common, why is it buying and selling at $75 when the world has this complete virus to deal with and economies are probably bouncing again into recession. So I feel it’s extra the oil worth that drove Sasol down as we speak somewhat than these outcomes.

On BHP Billiton trying to company motion for its petroleum unit:

I’m undecided how large it’s offhand, I ought to bear in mind – however it’s greater than 1 / 4 of their enterprise. And also you’re going to start out saying, did they do away with South32 a short time in the past, making an attempt to deal with the fundamentals? Didn’t we hear them saying oil and pure fuel and liquefied pure fuel have been going to be a few of their future. And bear in mind when Marius Kloppers was working BHP, he tried to do about three or 4 giant mining transactions again in 2006/2007 and none of them turned out – then he went  and purchased all this fuel property in america simply in time to catch the massive crash, the massive fall in 2008. So that they wrote off billions overpaying – grossly overpaying on the prime of the marketplace for all these supposed pure fuel or shale. It was extra shale fuel and even pure fuel. So that they’ve actually taken it on the chin and now they need to get out of pure fuel and regular oil. It’s a large a part of the corporate. Look, I’m a mining man – I’ve bought a partiality in the direction of commodities which can be extra predictable and you’ll management your prices. The oil enterprise, it’s multiples bigger than the mining enterprise. You place all the massive mining firms collectively, I don’t even suppose you get a trillion {dollars}, possibly barely. And also you don’t want too many oil giants to get to that quantity. It’s a large shock to me. They’re getting out, possibly they suppose that is the highest.

Learn additionally: 

Sasol sells 30% stake in Mozambique pipeline for R5.1bn
Platinum beneficial properties 21% this 12 months, surges previous $1,300 an oz for first time in six years
Northam Platinum buy-out proposal raises issues BEE advantages elite

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