In his first column for Smart Money, David Gleason surveys gold and wonders why Barlow sold investment company PGM for so little
Is this a good time to buy gold shares? The evidence supporting the view that gold may be on the verge of a better period (not fantastic, you understand, just modestly better than the misery of the past few years) is accumulating. The dollar’s recent sharp fall against the yen (it lost 20% over six weeks, although it has since stabilised) underlines the prevailing jitteriness in world markets.
The Dow’s inability to sustain itself above the 8 500 mark is another signal that the United States economy may become pretty quiescent over the next two years or so. If this is right, then despite the huge overhang of above-ground gold, much of it residing in central bank vaults, it may just be about to enjoy a while of modest appreciation. And, if that’s right, South Africa’s gold shares will probably be a good place to be.
A few years ago, the list of gold counters you could buy was almost endless. Mergers and acquisitions have certainly taken care of that – your choice is now severely curtailed.
The best on offer right now is probably Harmony, which offers good potential. Durban Deep, on the other hand, is a stock whose price is driven more by US investor sentiment than its own performance. And finally there’s Driefontein, whose shares are intended to be bought up by Gold Fields and Anglogold; minorities are already making noises about wanting more than is presently thought to be on the table.
Share confusion
Minority shareholders in the Johannesburg Stock Exchange-listed PGM Investments, will be forgiven for feeling as though they’ve been run over by a bulldozer. The events of recent weeks have left even experienced broking analysts confused.
The PGM mystery arises out of the decision by controlling shareholder Barlow to sell its entire stake to a British Virgin Island-registered shareholder called Platinum Investments International (PII), which is managed out of Jersey by Pinnacle Trust. And what has raised eyebrows are the sequence of events and the price at which Barlow decided to sell.
PGM is an investment company with stakes in Barplats (45%) Vansa Vanadium (50,3%), Anglo American Platinum (Amplats, 259 530 shares) and Impala Platinum (Implats, 329 800 shares). Its net asset value at the end of September was reckoned by the company to be 590c a share, giving it a total worth of R88-million.
Barplats’s biggest investments are in two dormant platinum mines: Crocodile River, previously called Lefkochrysos, in which many investors were badly burned, and Kennedy’s Vale near Steelpoort. PGM carried a heavy, open- ended responsibility for a share of the care and maintenance of the two mines.
On August 17 this year, PGM announced it had reached agreement to sell its stake in Barplats to Impala in exchange for 644 866 Impala shares valued at R41-million. That was followed by an announcement on September 29 in which PGM told shareholders it intended to distribute to them its net cash holding and underlying assets and then voluntarily wind up. It also told shareholders the net asset value of the company had increased to 724c a share.
Barely a week later PGM announced that PII had served notice it intended to exercise a call option granted to it by Barlow in June. PII would buy Barlow’s entire 75,4% stake, effective on September 30, for a price of 300c a share. The sum is that Barlow sells off its holding for R33,7-million; the underlying value is 724c a share or R81,4-million – on the face of it a profit of nearly R48-million for PII. This is what has puzzled analysts, underlined by a further announcement on October 20 of the sale of PGM’s Amplats shares for another R22,2- million and 229 151 Implats shares for R16,9-million.
So who owns PPI? And what is its relationship with South Africa? I haven’t been able to find out. Nor does it seem, I might add, has anyone else. The Barlow executive responsible for PGM for the past five years. Pierre Kriegler, categorically denied market rumour that PII is associated with Barlow. “There is absolutely no relationship whatever,” he said flatly.
Investec has clearly played an important role in the transaction – three of its senior men, led by director David Lawrence, now sit on PGM’s reconstituted board. Asked to reveal PII’s ownership, Lawrence said confidentiality agreements prevented his telling me.
The saga has emphasised the need for greater transparency on the part of company managers. In this case, Barlow needs to divulge a lot more information to its own shareholders and to PGM’s minorities – though to be fair they have certainly benefited from a vast unlocking of wealth.