A steady and reliable dividend payer

Assore is not the highest dividend-yielding share on the JSE, or even in the top 10. But thanks to the owners’ large share in the business, it is a generally reliable dividend payer, which should attract investors who know little about its core steelmaking commodities of iron, chrome and manganese ore.

Assore is in a 50:50 mining and processing joint venture called Assmang with African Rainbow Minerals (ARM) in iron ore and manganese. It also owns 100% of the Dwarsrivier chrome mine after buying out ARM’s stake last year, just as chrome ore prices took off. After iron ore, Assore’s most profitable business last year was the marketing and shipping of Assmang products through Ore & Metal Company.

The dividend for the six months to December was 600c/share. Second-half dividends have always been at least the same and usually higher than the first half. If Assore declares at least 600c for the second half of this financial year, making R12 for the 2017 financial year to June, its forward dividend yield rises to 6% from its historical 5.56%.

There’s no reason to believe the final dividend will be lower, even though the prices of its commodities have mostly come off their recent peaks.

Capital gains on Assore shares are more elusive. At R197.59 the price is 10% higher than a year ago, but on a fiveyear view there’s a 24% capital loss. On a total return basis,

taking into account R34.50 of dividends declared in the past five years, the loss is 10.5%.

In the second half of last year and into the beginning of this year Assore benefited from surging prices of iron ore, chrome and manganese, responding to growth in steel production in China coupled with supply bottlenecks. Chrome and manganese have lost some momentum, but iron ore is still firm. Thanks to dollar weakness, the rand has been stronger in the six months to June than it was in the previous year, which will also put a brake on Assore’s second-half profits.

In the six months to December Assore reported its average price for 62% iron ore fines was US$65/t from $51/t in the same period in 2015. High-grade manganese went to $6 per dry metric ton unit (dmtu) and the price of 44% chrome touched a peak above $400/t, a doubling of its previous price. At the end of June, 62% iron ore was being sold at about $68/t, 36%-37% manganese ore at $5.10-$5.35/dmtu and 42%-44% chrome ore at about $170/t after a sudden correction in early May. The rand strengthened to below R13/$ from about R13.75/$ at the start of the year.

Core Consultants MD Lara Smith says in the May Ferrochrome Report that the correction was caused by high stocks at Chinese ports, and it would take months to reduce stockpiles. In response to the lower price, there was some panic selling and production cutbacks by chrome miners. A strong rand has also squeezed SA producers’ profit margins.

In Core’s June Manganese Report, Smith says manganese ore prices are also under pressure from rising stocks.

Analysts are forecasting softening iron ore prices because of a surge in lowercost production. In an end-June report, Morgan Stanley forecast average prices would be $58/t next year and $54/t in 2019.

The outlook for Assore’s commodities is at worst flat, its marketing activities lend some stability and it is a rand hedge, so dividends are likely to keep flowing.