COMPANY COMMENT: Sibanye; Octodec
SIBANYE Gold shareholders gave the company a hiding on its dismal quarterly update, in which costs soared and production fell for a number of reasons.
The shares fell 11% on Monday as investors took a grim view despite the upbeat note sounded by Sibanye that it had left its full-year production target intact.
The problem is that between now and the end of the year there are gold sector wage talks that include Sibanye and promise to be the toughest in many years. That target could well be missed.
There are two unions fighting for traction at the expense of each other in the sector. They clearly want to show their members and potential new recruits they can wrest the best salary deal from the mining companies. What that means is there is likely to be a strike to push for these demands, and to show either union is muscular and has strong support.
The miners, which have been positioning themselves ahead of the talks, have been clear they cannot afford large wage hikes. Sibanye CEO Neal Froneman warned many mines "are marginal, and inflated wage and benefits increases will significantly impact on the sustainability of the industry".
The gold companies have gone on a publicity blitz, talking of schemes to tackle employee indebtedness and housing in an effort to head off challenges from the unions on those fronts. Smart companies will build in capacity to weather a strike, but any stoppage matching the five-month halt in the platinum sector last year will cause serious damage to an ageing sector.
OCTODEC Investments’ vision for the next five years is clear to investors. It is in the process of undertaking various residential development opportunities in the Johannesburg and Pretoria central business districts at attractive yields.
Being a first mover in the residential rental space has served the group well, with it being a consistently strong performer in terms of income growth.
Some analysts would like to see Octodec further expand its residential focus as this is widely regarded as SA’s new growth sector.
It also owns retail, office and industrial properties, some of which are in suburbs as opposed to city centres where Octodec has been most successful.
A further drive into residential property could even prompt Octodec to consider selling retail assets such as the R588m Killarney Mall, which in recent years has faced stiffer competition from centres such as Melrose Arch, Hyde Park Corner and The Mall of Rosebank.
Although the group has always been Gauteng-based, analysts say that perhaps it is time for it to explore opportunities in other South African cities.
• Nick Wilson edits Company Comment (email@example.com)