Content or commodities?
Does it make sense to buy content, or commodities, asks Sasha Naryshkine.
|||Stocks went slip sliding away yesterday in the city founded on a pile of gold; it is still there and a long way down.
Will we get it out? Yeah, possibly over a long time. It may have to be done with the minimum amount of human intervention.
According to Twitter account, This is Gold, 60 percent of all gold mined annually is used for jewellery. That is a theme I like a lot.
It is far easier, however, to own one of the majors in luxury, although it may come with high costs, it seems easier and less stressful.
Another fact from that Twitter account is that 40 percent of all the gold ever mined comes from Mzansi; we still have the third largest reserves after Russia and Australia.
And they have more gold medals than us, even though you know that only 5 percent of the gold medal is actual gold. A medal yields (if you melted it down and sold the raw material) less than $600.
A few more facts about gold and gold mining, 1 gram of gold can be strung into a thread 165 metres long. It is ductile, which is a chemistry term for being able to be drawn out into a long wire. Last one, at nearly 4km under the earth the pressure and temperatures are intense, with rock temperatures at 55 degrees Celsius, about the same as your geyser. Hot!
Hot commodity
Hot like the gold sector as a whole, collectively that index is up 155 percent year to date. If you had the foresight to call and go long the index and use a large amount of gearing, you may have found yourself in a position to throw in the towel for a few years. And to think about things deeply.
The other sector that is also on fire, year-to-date, is the platinum sector, up 131 percent.
Why is the all share index only up 3.37 percent? This is 2016 and there is a distinct absence from the majors of the single commodity mining stocks.
Read also: Output decline hits AngloGold shares
Tiger Brands has a larger market capitalisation than Gold Fields. Mr Price is about the same size as Sibanye Gold, and that is after all its heavy lifting. Richemont is six times the size of Gold Fields and it had a horrible, no good, year. Netcare has a market capitalisation the same size as Impala Platinum. Coronation and Harmony Gold have the same market capitalisation.
If you add the entire market capitalisation of all the mining companies together (including Anglo and BHP Billiton, as well as Glencore) together, you get to R1.83 trillion.
Remove those three from the mix and you have collective market caps from African Rainbow Minerals to Wesizwe Platinum of R766 billion.
All 44 of them. And that number is less than 82 percent of the size of Naspers as a whole. Think about that for a bit, all the mining houses in South Africa, that have their primary listings here in South Africa, as a collective are smaller than Naspers.
The 101-year-old company made an incredible investment over a decade ago in a Chinese internet company, and that single investment is bigger than the whole primary listed JSE mining investments. Notwithstanding the incredible performance year to date.
In every comparative case here above I would rather want to own the alternative companies, Richemont over the collective, Mr. Price, Tiger Brands and Netcare.
It is very hard to understand what drives the price of the underlying metal, be it inflation expectations or monetary policy from reserve banks (and their buying).
I would rather be in that investment tracking consumer trends from soft luxury in Nike and L'Oréal to Richemont.
You will never be able to own everything and you certainly WILL NOT be able to time the market on a consistent basis, even if you are armed with a thousand charts representing history of "what happened next".
IOL
Sasha Naryshkine is an analyst at Vestact, his views do not necessarily represent those of Independent Media.