Commodity prices are unsustainable at these levels – Peter Major rings the alarm bells
Commodity | prices

Commodity prices are unsustainable at these levels – Peter Major rings the alarm bells

Mining guru Peter Major is the go to man for anything and everything resource-related, with the veteran mining director cautioning investors on a day where Sasol, Northam and Impala Platinum announced results and earnings guidance. Major noted that the drivers of Sasol’s earnings – chemicals, was largely unexpected by the market given the robustness in the oil price since the beginning of the year. Major also gives credit to the resource counters management, stating that this is the most disciplined the management teams have been since he got to South Africa in 1982. Lastly, BizNews founder Alec Hogg and Major talk about the imminent corporate action with BHP Billiton’s petroleum unit, which is a significant contributor to the bottom line of one of the world’s largest mining companies. – Justin Rowe-Roberts

Peter Major on Sasol’s financial results: 

There are lots of surprises in the results. The debt came in at the low end of what they’d been telling us they were trying to do – R90bn instead of R95bn. But we’ll take what we can get. And 75% of their earnings came from chemicals. They were losing so much money on chemicals, but when the chemicals turned – they made a lot. So 75% of income on chemicals, only 25% on fuels. And we’ve had pretty high fuel prices. So that’s probably not going to get too much better going forward. But the chemicals seem to be really doing well now.

On Sasol’s pivot from oil to chemicals:

They always said that they want to develop the chemical bit just like they did later with explosives. But it’s something we’re not used to. We’re in basic commodities in South Africa. We’re used to gold, platinum, iron ore, manganese, coal and oil. So who is our big chemical plant? It was really them. The refiners weren’t listed – Engen was for a while. The chemicals are where Sasol sees its future, it wants to get out of making dirty coal into dirty oil and being the world’s greatest polluter.

On the market reacting negatively to Sasol’s results: 

I don’t know what it was expecting. I think it was more on the oil price coming off than on Sasol’s results. When the analysts are saying that these results are actually pretty good – there’s something driving the share price down that we’re not aware of. But I think the world is quite concerned about the oil price. You’ve got to remember, this virus is big and it’s not going away and it’s not playing favourites. It’s taking over the whole world. And I honestly have not imagined what is holding oil above $70. We always talk about long-term averages. We talked about the world’s greatest commodity that there’s no shortage of – oil first and maybe iron ore second. Why is oil trading above $50-$55 dollars? If that’s its long term average, why is it trading at $75 when the world has this whole virus to contend with and economies are looking at possibly bouncing back into recession. So I think it’s more the oil price that drove Sasol down today rather than these results.

On BHP Billiton looking to corporate action for its petroleum unit:

I’m not sure how big it is offhand, I should remember – but it’s more than a quarter of their business. And you’re going to start saying, did they get rid of South32 a little while ago, trying to focus on the basics? Didn’t we hear them saying oil and natural gas and liquefied natural gas were going to be some of their future. And remember when Marius Kloppers was running BHP, he tried to do about three or four large mining transactions back in 2006/2007 and none of them turned out – then he went  and bought all this gas property in the United States just in time to catch the big crash, the big fall in 2008. So they wrote off billions overpaying – grossly overpaying at the top of the market for all those supposed natural gas or shale. It was more shale gas and even natural gas. So they’ve really taken it on the chin and now they want to get out of natural gas and normal oil. It is a big part of the company. Look, I’m a mining guy – I’ve got a partiality towards commodities that are more predictable and you can control your costs. The oil business, it is multiples larger than the mining business. You put all the big mining companies together, I don’t even think you get a trillion dollars, maybe barely. And you don’t need too many oil giants to get to that number. It is a big surprise to me. They’re looking at getting out, maybe they think this is the top.

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