Sun International slots, bets on winning streak

Gaming and leisure company Sun International is facing some stacked odds on a number of fronts — but it has tapped a sweet spot in its alternative gaming formats Sun Slots (limited payout machines, or LPMs) and Sunbets (sports betting).

In the trading period ending December, Sun Slots generated R1.3bn in revenue (up 12%) and R252m in adjusted operating profit (up 13.5%). This means the LPM operation is more profitable than both of Sun’s Gauteng casinos: the new multibillion Time Square casino development and Carnival City.

Sunbet’s performance is perhaps more surprising after the subsidiary took a big bet by setting up a new operating platform in the third quarter of 2018. Turnover increased by over 80% to R140m and operating profits were up more than sixfold at R40m.

Sun points out that Sun Slots has delivered consistent doubledigit profit growth over the past three years, a performance that is largely mirrored in rival Tsogo Sun’s alternative gaming operations (which also include a sizeable electronic bingo business).

Interestingly, Sun reported a delay in the rollout of sites in KwaZulu-Natal and Gauteng, but Sun Slots was granted licences for a further 500 machines in the Western Cape.

There is the likelihood of this niche being affected by the outbreak of Covid-19. Many sporting events have been postponed, which will hit sports betting activity, and it is unlikely pubs and eateries (which house LPMs) will operate without restrictions. The last thing Sun needs at this juncture is cash flows to be compromised from its best-performing operations.

SIBANYE’S ASTUTE MOVE

Sibanye-Stillwater’s allshare purchase of Lonmin was an astute decision. Lonmin was the world’s third-largest platinum miner when Sibanye launched its offer at the end of 2017. While the mines were of a high quality, it was the processing division that was the real target of Sibanye’s interests. In SA there were just three platinum group metals (PGMs) companies that had mine-to-market facilities, being the ability to concentrate, smelt and refine these metals.

The costs and technical skills to build and operate sizeable smelters and refineries, which progressively remove base metals — copper and nickel — and then gradually tease out each metal making up the six PGMs, makes it very difficult for newcomers to build and operate these plants.

The processing plants that came with Lonmin put Sibanye into a rarefied group of operators. But they have given Sibanye rare flexibility to adapt quickly to the force majeure Anglo American Platinum (Amplats) declared after its two converters failed, meaning it could no longer feed its refineries.

Sibanye has a toll treatment agreement with Amplats, processing the concentrate from its large Rustenburg mines, paying the Anglo American subsidiary to smelt and refine PGMs and then returning them to Sibanye to market and sell as it wishes.

Sibanye, however, is able to use the spare capacity at its processing plant and keep its revenue streams largely intact.

Not only did Sibanye buy the entire Lonmin asset base of mines and processing plants for R4.3bn in shares at the bottom of the PGM price cycle, it has given itself unrivalled flexibility in difficult times.