MARKET WATCH: MINER MOVES
Moving onto happier events, there were a couple of interesting transactions last week in the broader mining sector. For one thing, Sabvest-aligned industrial investment company Apex Partners has bumped up its stake in mining services business DRA Global to 19.8%.
The DRA project scope entails the engineering, procurement, and construction of a 90,000 tpa Sulphate of Potash facility.
Apex — headed by Charles Pettit, who was the prime mover at Torre Industrial — is starting to look like an interesting beast, and has become one of Sabvest’s more significant investments.
Other than the DRA stake, Apex holds interests in CBZ Solutions, Gabriel (the shock absorber brand), ELB Equipment, analytics specialist ET-X, Elephant Lifting, Letaba Pumps, Tractor & Grader Supplies, as well as industrial and warehouse properties. Based on Sabvest’s most recent valuation of its 44.8% stake in Apex, the industrial business must now be worth about R1bn. This is a substantial business, though not yet on the same scale as listed counterparts Hudaco and Invicta.
I also doubt very much that there are any plans to list Apex on the JSE, where sentiment for small-cap industrial counters is disturbingly dismal. I also sense Sabvest relishes holding a large portfolio of high-quality unlisted interests that other investors do not have easy access to. The way Apex’s valuation has shifted up in recent years, I’d say the cash flow engines are revving nicely. What is worth watching is whether Apex makes further forays into DRA Global.
Readers will remember Apex making exploratory tilts at ELB Group before pitching an offer to minority shareholders and delisting the group from the JSE. DRA, with a market capitalisation of almost R1.4bn, is a markedly bigger business. Possibly there is an opportunity for Apex to reverse some of its current interests into DRA in exchange for scrip? Whatever the case, I can’t see Apex standing still at DRA.
The other deal that caught my eye was coal miner Thungela’s plunge into the Australian market via the takeover of the Ensham coal mining business. On paper it looks like a decent deal, with Ensham highly profitable and cash generative in a highly functional environment. The deal also provides a beachhead for further geographic diversification by Thungela. That said, so many local businesses have seen their Australian plans collapse in a heap that investors might justifiably reserve judgment.
Managing large assets on distant shores has never been easy. Might the purchase price prove costly when considering what Thungela could have scooped up in the local energy sector?
The last thing I’d want is Thungela’s dividend flows to be stanched.
Written by: Marc Hassenfuss
