ARTICLES

Gold's Record Run

On Friday last week, gold reached a new all-time record high of $2871.42 per ounce. Its gain in rands has been even more impressive rising from less than R1000 per ounce in August 1992 to last Friday’s close of R52864.85.

In our Confidential Report of March 2024 , we pointed out to you that the US dollar price of gold had broken above resistance at $2060 and was headed into a strong new upward trend.

The question arises, “How could private investors best benefit from this rising gold price?”

There were and are basically two options:

• Buy bullion in the form of Krugerrands or a gold ETF.
• Buy shares in a listed gold producing company.

Obviously, investing in shares is far more risky than buying gold bullion – but then it is also commensurately more profitable.

On 25^th March 2024 we published an article in which we discussed the performance of Harmony shares on the JSE . We noted at the time that, since we added Harmony to the Winning Shares List (WSL) on 16^th November 2023, it had risen 43,97% in just 4 months. Since that article Harmony has continued to perform very well and closed on Friday at 22330c – giving it a gain to date of 122,8% since we added it to the WSL.

Over the same time period, the price of a Krugerrand has risen from R39 000 to R52 000 – a gain of 33,3%. You should also note owning Krugerrands does not pay any return. There are no dividends – just a capital gain. Harmony, by contrast, paid out a dividend of 75c per share in 2023, 241c in 2024 and is on track to pay an even higher dividend in its 2025 financial year. Consider the chart:

The chart shows that since our article, Harmony’s shares have been in what technical analysts call a “broadening formation”. The share price has been oscillating between a support price of around 15000c and a rising upper trendline. If it breaks significantly above that upper trendline – which it looks set to do – then it could enter a period of even stronger growth.

Of course, gold mining is a very volatile and potentially highly risky venture – much more risky than just holding a few Krugerrands. Harmony has the dubious distinction of operating the world’s deepest mine – Mponeng. This mine, bought from Anglogold for R4,2bn in 2020 is operating at close to 4000 meters below the surface. At that depth the rock temperature is 66 degrees Celsius.

To bring that down to a bearable 30 degrees, the mine runs one of the world's largest crushed ice plants. Crushed ice is pumped down to the bottom of the shaft where it melts and cools the shaft and then it is pumped back up to the surface, re-frozen and pumped down again in an endless process that continues 24 hours a day 365 days a year. The benefit is that, at those great depths, the grade of recovered ore is very high and hence very profitable – high risk, high return.

So holding Harmony as an investment is many times as profitable as holding Krugerrands, but it is also many times more risky. The international price of gold is volatile and a function of many complex factors – such as the outcome of the war in Ukraine and the prospect of a lasting peace in the Middle East. Harmony is a price-taker – not a price-maker, but right now the price is high and rising.

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PDSNET ARTICLES

Quarterlies

One of the major differences between the US equity markets and the JSE is that listed companies in America are required to report every 3 months, not every 6 months as they are on the JSE. The quarterly reports of the S&P500 companies are closely followed by investment analysts and predictions are made for their profits.

Growth by Acquisition

Hudaco (HDC) is a master of growing by acquiring smaller businesses in similar fields of activity or businesses, which then complement its existing suite of businesses. It has been making these bolt-on acquisitions for many years and has developed great expertise at selecting and evaluating appropriate targets.

These bolt-on acquisitions are mostly small

The Impact of News

Old Wall Street wisdom says the following concerning news which comes out about individual listed companies:

1. Good news which is expected - causes the share price to drop.
2. Good news which is unexpected - causes the share price to rise.
3. Bad news which is expected - causes the share price to rise.
4. Bad

Karoo

In April 2018 – nearly seven years ago – we wrote an article about Cartrack. At the time we suggested that it was the ideal investment for private investors because it was a service company with debit order income and almost no working capital that was growing rapidly both locally and internationally.

Tweets

Over the Festive Season, we have been communicating with you via our tweets on “X”. The chart below shows the timing of our individual tweets and what subsequently happened to the S&P500 index.
 

Winners in 2024

2024 was always going to be a very good year for the share market. The year began with the S&P500 at 4742.83 (2/1/24) and it reached an all-time record high of 6090.27 (6/12/24) – a gain of 28,4% excluding dividends.

On the 25^th of January 2024 we made the following prediction on Twitter (X):

Pan African Update

Pan African (PAN) is undoubtedly one of our best picks for this year. The share price has doubled in less than 12 months from when we added it to the Winning Shares List (WSL) at the end of January at 430c to last Friday’s close at 861c. Consider the chart:

Mr Price Interims

Almost 6 months ago, on 17^th June 2024, we wrote an article about Mr Price (MRP) in which we examined their results for the year to 30^th March 2024. These results had been published on the Stock Exchange News Service (SENS) a few days earlier on 13^th March 2024 and they were very impressive.

Altron

Allied Electronics better known as Altron, is South Africa’s oldest technology company listed on the Johannesburg Stock Exchange (JSE). Since 1965 it has been providing IT solutions to the economy in various forms. Its customers include more than half of the top 100 companies listed on the JSE. It processes more than 100 million healthcare transactions every year,

Lewis Revisited

Working capital is always a key consideration when looking at a share, because it shows the quality of the company’s management. In simple terms, working capital is the cash tied up in the running of the business and it is calculated as:

Debtors + Cash – Creditors

Obviously,