Se­cu­ri­ties busi­ness on way out

Group says it now wants to fo­cus on cap­i­tal-light, high-an­nu­ity busi­nesses with lim­ited key-man risk

Financial Mail - - MONEY&INVESTING - Stephen Cranston [email protected]

coun­try, Min­ergy says it has an ad­van­tage over SA coal pro­duc­ers in its abil­ity to sup­ply in­dus­trial users in the north­ern parts of the coun­try.

CEO An­dre Bojé says Min­ergy’s coal will not aim to plug the holes for Eskom, which is fac­ing a sup­ply crunch. But its cus­tomers, in­dus­trial users such as ce­ment mak­ers, are go­ing to get “con­sis­tent qual­ity and guar­an­teed sup­ply at sim­i­lar pric­ing”.

Crit­i­cally, ce­ment mak­ers and the like can take the finer coal — the duff — while the larger pieces (“peas” and “nuts”) could be sent fur­ther into SA at com­pet­i­tive prices.

Astrup says that while it seems Min­ergy will be the first Botswana coal pro­ducer to mar­ket, it doesn’t want to be the only one. At this rate, it’s not likely it will be.

Maatla En­ergy is pur­su­ing a li­cence to mine its Mmam­ab­ula project in Botswana. And Shumba En­ergy’s Mabesekwa mine is re­port­edly at an ad­vanced stage and due to be com­mis­sioned by 2021.

African En­ergy Re­sources also has a project in the works and Morupule, spurred on by high global coal prices, is ramp­ing up pro­duc­tion

Many peo­ple proved there was a lot of coal in Botswana but … coal be­ing there is only half the story. You need a mar­ket John Astrup

aimed for ex­port.

“There are so many syn­er­gies when you have a coal in­dus­try — bet­ter in­fra­struc­ture, more wag­ons, more ca­pac­ity on the rail­way lines, which brings your tar­iffs down,” says Astrup. “So we don’t want to be a mine on our own. Ev­ery­one will have to find their lit­tle piece of the mar­ket.”

Once in pro­duc­tion, Min­ergy plans to list on the Lon­don Stock Ex­change’s Al­ter­na­tive In­vest­ment Mar­ket.

The com­pany ex­pects a warm wel­come. “They like min­ing, they like Africa and they specif­i­cally like Botswana,” Bojé says.

Pi­eter du Preez, se­nior econ­o­mist at NKC African Eco­nom­ics, agrees that Botswana is a premier in­vest­ment des­ti­na­tion in

South­ern Africa.

It has strong macroe­co­nomic fun­da­men­tals, solid eco­nomic and fis­cal poli­cies, and re­mark­ably low pub­lic debt lev­els. It is per­ceived as one of the least cor­rupt coun­tries in Africa.

“Botswana also has the most favourable sov­er­eign credit rat­ings on the African con­ti­nent, well above the junk-sta­tus grade. On the po­lit­i­cal front, Botswana will con­tinue to be one of the con­ti­nent’s model democ­ra­cies,” he says.

Still, the coun­try has nu­mer­ous chal­lenges to over­come, he says.

Mainly, it re­mains over-re­liant on the volatile di­a­mond min­ing in­dus­try de­spite “sig­nif­i­cant ef­forts” to di­ver­sify the econ­omy.

Ef­forts have been com­pli­cated by a short­age of skilled labour cou­pled with rel­a­tively high labour costs. Re­cur­ring droughts have con­trib­uted to a weak per­for­mance by the agri­cul­tural sec­tor.

Though the fledg­ling ju­nior coal-min­ing in­dus­try has po­ten­tial, for now, the big­gest chal­lenge for Botswana re­mains di­ver­si­fi­ca­tion away from di­a­monds, Du Preez says.

Pre­vi­ous Pere­grine CEOS con­sid­ered its broking and struc­tur­ing busi­ness to be the glue that kept the group to­gether.

Af­ter all, the Pere­grine Cap­i­tal hedge fund man­ager was an im­por­tant client and it was a sup­plier to other group busi­nesses such as wealth man­ager Ci­tadel and its Uk-based fam­ily of­fice Sten­ham.

Now, sub­ject to Com­pe­ti­tion Com­mis­sion ap­proval, Pere­grine will dis­pose of its se­cu­ri­ties busi­ness al­to­gether. CFO Claire Cow­ard says Pere­grine Se­cu­ri­ties no longer fits into the cur­rent group model, which is to fo­cus on cap­i­tal-light, high-an­nu­ity busi­nesses with lim­ited key-man risk. Pere­grine Se­cu­ri­ties had nu­mer­ous calls for cap­i­tal.

“The mar­ket is start­ing to see that we have been evolv­ing into a wealth man­ager with some strong as­set-man­age­ment skills,” says Cow­ard. For Pere­grine, 56% of its earn­ings in the six months to Sep­tem­ber are in dol­lars and pounds, up from 38% in the com­pa­ra­ble pe­riod.

It even ac­quired a toe­hold in the in­sti­tu­tional mar­ket through its 30% hold­ing in in­vest­ment bou­tique Elec­tus.

Pere­grine’s re­sults are messy, as the R65m re­turn from pro­pri­etary as­sets, which were un­bun­dled into Sandown Cap­i­tal, were not re­peated. And Pere­grine Se­cu­ri­ties is treated as a dis­con­tin­ued op­er­a­tion, iron­i­cally hav­ing a great swan­song, with earn­ings up 54% to R77m. Nor­malised head­line earn­ings for the group were up 4% to R283m.

The pro­ceeds from the Pere­grine Se­cu­ri­ties sale will be R1bn, which Jacques Plaut of Al­lan Gray (the group’s largest in­sti­tu­tional share­holder) con­sid­ers to be a low mul­ti­ple.

Group CEO Rob Katz says some of this will come back to share­hold­ers, through

The Min­ergy open­cast coal mine, north of Gaborone

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