To market, to market to buy a fat pig. Wow. Giddy people about the birth of someone born into titles and wealth, how is that possibly news? I guess if you believe in all that pomp and ceremony, then go for it. The history of it all is fascinating, but in reality, did you ever stop to think how those folks managed to get into that position of favour? Don't call me anti anything, I just think that it might be a little overdone, and people with real jobs, people like Lloyd Blankfein and Jamie Dimon are vilified as a result of "their part" in the financial crisis. A banker is seemingly not the best "best friend" to have, but they certainly add more value, despite what popular might dictate to society. Not sure how you feel about that!
The biggest story of yesterday, locally in the markets was the tearaway action in the gold companies, as a collective they added over seven percent. But the year has been awful, still awful for the collective. Down over 42 percent as of this morning, the collective platinum stocks are down 29 percent plus. The day in the sun was amazing, let us hope the earnings are there to justify the stock prices and that the companies can actually continue to develop their assets, creating jobs along the way, and wealth for long suffering shareholders. For those who hang in there at least.
You have to keep learning each and every day. Otherwise you will no doubt get stale, isn't that right? We are lucky because we have a community out there with many different skill sets. And that includes mining of course. So when I said that I was confused about the mining terminology, and how Amplats had presented a figure yesterday, of course folks would come back to help.
And help understand they did. Remember the comment first, from yesterday: "Average platinum mined per employee increased two percent, even if metres squared mined per employee per month was 1 percent lower to 6.5. Six and a half metres squared, that sounds weird, surely it should be cubic metres?"
Of course the community out there pointed out what I was missing, firstly Daniel Limpitlaw, the principal over at Limpitlaw Consulting. As per the website, this is right up their alley: "The Company provides technical services in mining, environmental and sustainability disciplines to mines and exploration projects"
Daniel had this to say to me:
- "I thought I would throw in a penny's worth for your information: the measurement "centares" or m2 is used in narrow vein mining (both gold and platinum). A centare is the area of reef mined or advanced and takes the strike length into account (i.e. the length of the mined face) but not the mining height. It is useful because in many narrow vein orebodies, most of the mining height is made up of waste, so if the miners produce more cubic metres of rock, they are mining more waste and so decreasing the profitability of the mine (each tonne of waste rock costs the same to handle as a tonne of payable ore). Often bonus schemes for miners are based on m2 and not on m3 for this reason."
Thanks so much! We are now all the wiser.
It did not stop there, because knowing the brilliance of the readers, a fellow from down under (yes, Australia), who works in the mining industry too, gave me his view:
- "Tabular reef deposits such as SA gold and platinum have always reported stope labour efficiency in terms of square metres per man - two dimensions rather than three. Easy to calculate the tonnes milled per man from the company reports if you prefer a more 3D orientated trend.
No doubt the big message is the gradual drop in efficiency over time, whatever the measure. Twenty years ago, I remember 12 square metres per man per month for stoping efficiencies on the shallower West Rand gold mines. Depth, cost, better conditions for labour, safety improvements, probably have all had an impact in the interim."
That is also wildly interesting, because it goes to the heart of productivity. Sometime there are factors that genuinely hamper the ability of labour to push the envelope. Safety is a major consideration, in this half a single employee lost his life. Of course all (labour, the business and shareholders) will share the feeling that one death is one too many. Mining is a dangerous business.
Thanks so much, keep them coming, we always appreciate the feedback, a lot more than you would think! Oh, and it turns out that more than one of you thought I was wrong about Dublin and Rome, thinking that Dublin was a wonderful place. Phew. Individual preferences I guess!
MacMiss. Not a supersized miss, but a miss over the seas and far away might as well be any size. Supersize, downsize, less in size. The actual quarterly miss was 2 cents earnings, the currency translation was exactly 2 cents, but I would think that the analyst community knows well enough about the currency ebbs and flows of a multinational business like McDonald's. 69 million people are serviced in 34 thousand restaurants across 118 countries each and every day. And more than 80 percent of all the McDonald's globally are owned and managed by franchise owners. So essentially these folks are their own bosses, but of course have to pay royalties to the parent company or to the super franchise owner. As per the company profile on the McDonald's website 59 percent of the stores are conventional franchises, whilst 21 percent are licensed to "foreign affiliates or developmental licensees". The balance, one in five stores, are owned by the company.
Oh, and just recently the company announced that they had issued a developmental licence for Vietnam. That is right, around 40 years after the Americans were persona non grata in Vietnam, they are back with one of their most recognizable landmarks. What is also great about the business is that they are able to customize menus for specific territories. No two regions are the same. What sells in India would probably never sell in the USA. In India there is a McVeggie, the McSpicy Paneer burger, in Singapore there is a Teppanyaki Chicken McGrill and in France you can have a Petit McBaguette. So, it is a case of horses (no meat of that sort though) for courses.
But we are getting distracted, here is the release: McDonald's Reports Positive Second Quarter 2013 Results. US sales were only a percent better. Europe was a struggle, good performances in Russia and the UK offset weaker German and French sales. Across to Asia, Australia, China and Japan were all laggards, whilst other markets did better. In the region, which is the Middle East, Asia Pacific and Africa! That would include ourselves. Sales for both the six months and comparable quarter were only two percent better, earnings for the second quarter was 6 percent better at 138 cents per share, for the half EPS was only 5 percent better to 264 cents. Expect less than double that for the full year, and a little over 6 Dollars EPS for the year after that. I would be surprised if the dividend was notionally increased toward the end of the year, for the last quarter.
McDonald's paid their first dividend 37 years ago in June. It was 2.5 cents. Adjusted for stock splits that would have been 0.062 cents. Nowadays it is 77 cents. But the amazing thing is that it has risen each and every year since that first dividend. Unbroken. Notwithstanding the Asian debt crisis, the recent financial crisis, and all the other different moments of angst that you can think of along the way, the dividend has continued to tick higher. There were many, and surely there are many still to come. But the company has continued to reward their shareholders. Price action? Well, as per the McDonald's investor relations segment: "Since going public in 1965, McDonald's has executed twelve stock splits. In fact, an investment of $2,250 in 100 shares at that time has grown to 74,360 shares worth approximately $6.6 million as of market close on December 31, 2012."
Wow. That is huge. But it is not 1965. It is 2013, where people are more conscious about their waistlines and portion sizes. There are at the same time more of us now than ever before, and populations should continue to grow. And McDonald's will continue to tweak their menus to adjust to the changing tastes of society. Check out the original menu, which I found through a Google search: Early McDonald's menus.
Valuations? Is the stock expensive? Well, it sank around two and a half percent to 97.58 Dollars. On the assumptions that they are likely to make somewhere in the region of 6 Dollars next year and 5.60 dollars this year, the stock trades on a multiple of 17.4 times current years earnings, and 16.25 next years earnings. For slow growth rates, I would hardly argue that is cheap. The dividend is important though. With a current yield of 3.15 percent, and a forward yield in the region of 3.3 percent (assuming 80 cents) that should at least give the stock a very decent floor to work with in the medium term. So no great shakes with regards to the share price, as growth rates slow. If you own them, continue to do so, I would think that if the stock were to get anywhere near 90 dollars, that would represent a great opportunity. For the time being, hold.
Byron beats the streets
This morning we received 6 month results from Kumba Iron ore which were flat. That certainly does not paint the whole picture, there are lots of moving parts here. Headline earnings came in at R7.7bn for the period. This was the same as last year. However the drivers were different. The rand was on average 16% weaker which partially offset a 7% weaker average iron ore price. Overall revenue was up 4% even though sales volumes decreased 5% to 22.1 million tonnes (Mt).
This translated to headline earnings per share of R24.13 with the majority of that (R20.10) being paid out as a dividend. This is Anglo's cash cow and they are certainly milking it. Estimates are for R45 earnings for the full year. This is of course very hard to determine because both the iron ore price and the Rand have been extremely volatile. Using this forward estimate we have the stock trading on 10.5 times 2013 earnings and a dividend yield around 8%. That is an amazing yield.
Operationally we saw a 10% decline in production from Sishen to 16.1 Mt. This mine is still feeling the impact of the strike in the second half of last year. They took the opportunity to ramp up production, especially with waste stripping which may hamper margins slightly but will give the mine more flexibility. Kolomela has been a great success story as the ramp up starts to stabilise and fast reaching capacity. The mine produced 5.3Mt of iron ore, an increase of 62%. The mine now contributes 24% to overall production. That is very impressive for a mine that only started production less than 2 years ago.
And what do they think of the overall market? They explain the movements in the iron ore price for the first half of the year quite nicely. This is interesting.
"Global crude steel production increased by 3% to 787 Mt for the first half of 2013 (2012: 766 Mt), with Chinas record production of 385 Mt being 8% higher (2012: 356 Mt). However, faced with strong pressure on steel margins, Chinese steel mills reduced iron ore inventory levels and, as a result, demand for seaborne iron ore grew at a slower pace than crude steel production. Europe's ongoing struggle with austerity measures translated into a 4% decrease in production, with the rest of the world contributing the difference. The improvement in the outlook for the Japanese domestic auto industry has driven increased domestic crude steel production with anticipation of higher finished steel export volumes."
And looking ahead? Here is what they think of the iron ore market for the rest of the year.
"Steel fundamentals remain under pressure as the Chinese economy slows down, with manufacturing activity receding as a result of declining export orders. Iron ore prices are expected to remain under pressure as supply exceeds demand in the second half of the year, though restocking by steel mills may support prices in the near term."
I guess that explains why the stock is fairly cheap. And I agree, infrastructure spend does look like it's slowing in China. But China is not the be all and end all, the long term picture for infrastructure demand in India and many countries in Africa is still huge. The company rightfully state that their main objective is to satisfy domestic demand and focus on their own operations. This is the only South African mining company I would invest in for that juicy dividend and strong production from Kolomela while Sishen production stabilises. It will be a bumpy ride though as the Rand and Iron ore price fluctuates.
Home again, home again, jiggety-jog. Mr. Market is up and away this morning, around two thirds better. Apple earnings are post the market this evening, I see that some folks in recent months have lowered their expectations for the number of units sold across their product lines, fewer iPhones, iPads and Macs than previously thought. We shall see.
Sasha Naryshkine and Byron Lotter
Follow Sasha and Byron on Twitter
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