Key message: Bauba is a relatively low-risk operation with competitive reserves.

  • Raubex hosted a site visit to Bauba Resources (Kookfontein mine).
  • The biggest take-home from the site visit was the low-risk nature of the Bauba operation and availability of reserves and resources for a LOM of up to 15 years. This business should generate good cashflows and have a payback of 4-5 years. The other take-home is the sensible view of management to treat it as a once-off foray into mining while using it to gain experience in the mining sector – valuable for other group companies.
  • Bauba operates relatively low risk chrome mines and the move into mining has been successful so far for Raubex with Bauba contributing substantially to the recent results. However, Raubex does acknowledge the extra risks that mining entails and it does not appear likely that it will look to further expand the mining portfolio. The high capital cost for mine establishment is significantly different to the normal capital requirements for a construction company and Raubex does not want to put the balance sheet at risk. Raubex will therefore not be the next Afrimat, in our opinion, but continue to focus on core contracting and material supplies. Bauba should provide good profits over the 10-15 year LOM and should be looked at as a discrete opportunity that should provide a good return on investment.
  • Bauba has focused on opencast chrome operations where relatively few resources are left in South Africa – more mining is moving underground at double the mining cost. With chrome by-product production declining in the traditional PGM mines (low prices, move to northern limb where chrome is absent), the outlook for chrome demand is positive (South Africa supplies 80% of the world’s chrome).
  • Bauba has offered opportunities for Group companies to secure more work (B&E on processing plants, SPH in contract mining, Raubex Construction for tailings dams). However, this alone does not justify investment into mining operations and Raubex will not look at mine investments purely to secure work for other divisions.
  • It would be difficult to find another Bauba-type investment without potentially taking on too much capital investment risk. We do believe that Raubex management is comfortable to view Bauba as a once-off foray into the mining sector and not lose focus on core strengths.

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