A single South African mine is worth more than Clicks and Dis-Chem combined

Gold Fields’ last remaining South African mine, South Deep, has an implied valuation that is greater than the combined market capitalisation of Clicks and Dis-Chem, with around R20 billion to spare.

The mine is also worth more than Johann Rupert’s Remgro, and a combination of Woolworths, Truworths, and Mr Price.

This is a direct result of the surge in precious metals prices over the past two-and-a-half years, with gold surging to over $5,000 per ounce at times. 

The rise in precious metal prices has been coupled with declining fortunes for South African retailers as the tailwinds that boost their performance appear to have switched to headwinds. 

As a result, there is a peculiar situation where a single mine, that is notorious for operational difficulties, is more valuable than a host of large retailers. 

This presents a good buying opportunity for investors, Allan Gray’s Sean Munsie explained, as the selloff of some retailers has been overdone. 

While retailers play a prominent role in the everyday lives of South Africans, they have become an increasingly small part of the JSE All Share Index. 

Apart from Shoprite, these companies have seen their share prices come under immense pressure in the past year, while those of precious metals miners soared. 

“I think you will be surprised to know that this whole collection of businesses now only makes up 5% of the JSE, which is hard to imagine,” Munsie said. 

Munsie explained that much of this has come as a result of retailers being left behind by other sectors of the market, which have outperformed over the past few years. 

This is not limited only to precious metals miners, with banks and other financial institutions also matching the index’s performance and now making up a larger share of the JSE than they did a decade ago. 

The declining share of retailers is made more stark by the dramatic drop in the share of multinationals after a JSE rule change gave preference to companies with a greater share of their issued stock on the exchange. 

This saw the weightings of beer giant AB InBev, luxury brands conglomerate Richemont, and British American Tobacco plummet from 30% in 2016 to just over 5% in 2026. 

Much of this share has been taken by gold and platinum miners, as well as South Africa’s largest banks. This can be seen in the graph below, followed by the underperformance of retailers. 

Retail on sale

As retailers have fallen out of favour and investors reap the rewards of a precious metals rally, Munsie explained that interesting opportunities have opened up. 

“To give an example of the kind of opportunities we see here, we looked at Gold Fields, the second biggest share on the JSE with an 8% weighting,” Munsie said. 

“The only remaining South African Gold Fields mine is South Deep, and the implied valuation of that asset is around R110 billion at the end of the first quarter.” 

Located on the West Rand of Gauteng, South Deep is one of the most complex mining operations in the world, operating at depths of up to 3,500 meters. 

While it has one of the largest gold reserves in the world, the mine’s history has been marked by requiring feats of engineering and significant capital to extract the precious metal. 

This makes it costly to operate, but in the current environment with an elevated gold price, it can be very rewarding for Gold Fields and its shareholders. 

“Many are familiar with the checkered history of South Deep, but at these types of gold prices, it is making a whole heap of cash,” Munsie said. 

This has resulted in the value of the mine surging to R110 billion, which, if the value is stripped out of Gold Fields, gives it a 1.2% weighting of the entire JSE All Share Index. 

“You could exchange South Deep by itself for any collection of retailers and other companies that South Africans are familiar with,” Munsie said. 

Allan Gray’s research shows that South Deep is equal in value and weight to the combination of Woolworths, Truworths, and Mr Price. It is also worth around R20 billion more than the combination of Clicks and Dis-Chem.

This exemplifies the opportunities for Allan Gray among retailers, with well-run companies seeing their valuations fall amid fears of an inflationary shock from the conflict in the Middle East. 

“These are some of the names we are buying on behalf of our clients in the last little while, the likes of Dis-Chem, Truworths, and Mr Price. I would also include Shoprite here,” Munsie said.