MONEYWEB, Erika van der Merwe, 14 September 2006

Gold bulls have had to grin and bear it through the past week or so.

What’s going on?

MONEYWEB: We welcome in the studio Paul Walker, CEO of GFMS in London. Paul, you don’t look at all as I expected. Where’s the suit and the cropped hair?

PAUL WALKER: I’m working on that one. It’s been about a 20-year project. I don’t think it’s going to be any more successful than it’s been over the last 20 years.

MONEYWEB: You look like Durban surfer – you and Arthur together. What a combination!

PAUL WALKER: We have a secret that we haven’t really shared with the rest of the world yet. You can get away with not looking the way people expect you to look all the time.

MONEYWEB: That’s welcome news.

ARTHUR BUCHNER: That’s why we hide behind our screens. So you don’t open outcry on the floor any more.

PAUL WALKER: That’s why we both have faces for radio.

MONEYWEB: Oh, not at all. Now Paul, gold bulls have had to grin and bear it through the past week or so, when the price dropped to below $600/oz. What’s going on?

PAUL WALKER: I think there’s just a process of consolidation in the market. There’s news that’s come through that’s shaken a few people. I think there was a lot of speculation at one stage that the central banks, the European central banks, those signatories to the central bank gold agreement, had been possibly selling a little bit in the towards the end of the central bank gold agreement. The number of calls I got from people asking that question suggested that there were a number of people out there who were thinking that was a realistic scenario. I think you’ve just seen some of the longs coming out of this market. The short term corrections of volatility we’ve seen over not just the last couple of weeks but the last couple of months, and indeed the last year or so, are going to be a feature of this market going forward. But I think this is a temporary drop and I think we’re going to see the turnaround coming fairly shortly.

MONEYWEB: So you talk about short-term corrections. Is that sort of clean talk for volatility?

PAUL WALKER: Well, it is volatility and I think, you know, people are looking in this market on a short-term basis for any reason to explain or try and trade on gold. So if the oil price goes down, people think there’s going to be a benign reconciliation of a variety of factors and say, the US economy, that’s maybe not as bad as we thought it was going to be. And on that basis people will trade gold down. But if you have a look at, for example, the correlations between gold and oil, it’s not really there on a long-term basis but on a short term basis. I had lunch today with somebody and we were talking about this very thing. People will trade on it. If you told me that oil was going to drop by another $10, I would definitely short gold. But, you know, that’s a short-term phenomenon and I think the longer-term fundamentals of this market, the investment case for gold, are still very much intact.

MONEYWEB: Well, let’s talk about that – the long-term view. What are the supporting factors?

PAUL WALKER: Well it goes back to a point I’ve made on this show over the last year and a half, and we haven’t really changed our story at all. It’s the US economy, and the fact that sooner or later there has to be a day of reckoning in that market, where the dollar’s going to weaken, people are going to pull out their cash – these are foreign investors from US equities and US debt – and they’re going to be looking for alternatives. That’s going to manifest itself in a weaker dollar, but it’s really the investment flows on the back of a correction in the US – that we’ll see at least a significant portion, a small but significant portion of that money going into gold.

MONEYWEB: Now you talk of the “day of reckoning”. Is this similar to the interview we’ve just had – a day of reckoning in response to the US deficits.

PAUL WALKER: Sure, well, you know, I think The Economist magazine described it as the “slow hiss of the housing bubble that’s starting to burst in the US”. And, you know, if you were to take an Economics 101 student and say: “Here are the outlines of an economy, what are the sorts of mechanisms that you would expect to see in place to bring about an equilibrium?” This is unsustainable in the longer term. And it’s going to be through a collapse in housing prices, there’s going to be a wealth effect from there, there’s going to be an effect on US equities. The flow-through to that is that foreign investors in the US are going to be looking for another home for their cash. Where do you put it in this market? The European markets aren’t looking particularly great. Japan is going through a recovery, but maybe has gone a little bit too far too fast, so there’s downside risk on Japan. What’s going to happen to the yen? Maybe it’s going to strengthen. When you go through all the alternatives there, there are alternatives – and I think those markets will certainly see the benefit from any correction in the US. But gold is still a significant issue on people’s radar screens, and I think you’ll see cash going into that and driving the price higher.

MONEYWEB: Now, Paul, your case is based on the demand element –the value for gold as an alternative asset or as an asset class, as opposed to jewellery demand, say.

PAUL WALKER: That’s true, but don’t forget, this is where the benefits of gold lie – that on the downside risk and currently where we’re trading, I don’t know what the price is at the moment, say $585, $590, you’re looking I would imagine at considerable demand coming out of the Asian market. So you have as an investor a safety net on the downside. I don’t think investors are ready to head for the doors and leave the gold market. There’s been an active two-way market in gold for some considerable time. The first half of this year our data – we do a lot of research with the private banks in Switzerland and elsewhere – it’s been a two-way and a very active two way market. But the investors are not running for the doors. People are being fairly astute in their investments in gold, getting in at the right time, getting out at the right time. But the bottom line of this is that there’s a bedrock of good physical demand at prices under $600. That’s going to mitigate your downside risk. And then you ask the question – if we do see what I think is an increasingly consensus view about the US economy, where does the gold price go? It goes up.

MONEYWEB: I know we’re always asking this, Paul – I think it’s a hazard of your job. Your view on the gold price? You’re quoted as saying that you expect a better level next year. What is your forecast for the end of next year?

PAUL WALKER: Well the end of this year we I think we’ll see $700 gold, or certainly very close to $700 gold before the end of this year. I think it’s going to be a bit of a roller-coaster in the next three or four months in this market. As we go into 2007 – again, to make a call on when the US economy is really going to turn. Now I’ve indicated in the past that I think the US economy is showing the strains. Sooner or later this is going to break, and if it does break in the near term then $800 is very much on the cards next year. But I think a best-case scenario is that you see the dollar weakening, you see these corrections coming about in the US economy, and that means to us certainly $600-plus averages for the rest of this year, quite possibly touching the $700s. And if the dollar really does crack, then the sky’s the limit.

MONEYWEB: Arthur, you’re nodding sagely.

ARTHUR BUCHNER: Well, yes, and you know one thing that saved the gold bulls over the last two or three weeks is the fact that the rand has weakened. If you take the rand price of gold, I think it’s sitting at around R4450, somewhere around there, and even though this gold price has pulled back that’s actually gone up. So if you’re a South African investor that is long on gold or likes gold, and you buy into a GLD, which is the rand listed price of gold, or you buy into a Gold Fields or whatever you want your exposure to, you do have a dual hedge. You have a currency hedge first of all, and then you’re also bullish on gold. And that’s really saved you and protected you over all these pull-backs. Every single pull-back we’ve found the rand’s actually continued to weaken with that pull-back. So it hasn’t been that volatile for you as a holder of the gold itself, but it’s been quite volatile if you’ve been a holder of the stock. And that’s basically it.

MONEYWEB: Paul, you refer to the investor flows and investor demand for gold as being a significant factor in your argument. What does the retail investor demand for gold look like?

PAUL WALKER: Well that’s a good question because I think the reason we haven’t seen $800 gold is because the retail investors really haven’t come into this market yet, and that’s the wildcard out there. If you have a look at our data on bar-hoarding, which is a kind of proxy for retail buying in the Asian markets, Japan were net sellers in the first two quarters of this year. If you have a look at the US market, there was a little bit of a blip earlier this year when they launched the .9999 coin there, the Buffalo. But really, there’s been no real action on that side of the market. And if we are going to see $800 or $900 gold prices, there’s no doubt that we’re going to have to do this on the back of retail investors. And I think this is the time perhaps, when the US economy starts to show signs of weakness, people are going to be looking for a hedge against that. And those who do have spare cash – and, trust me, there are not going to be that many people in the US who will have spare cash when this bubble starts to burst – but those who do will be looking for an alternative home, and gold is going to be a very good hedge against, if you like, the strength of the dollar and the wealth preservation for those in the US. If that happens, then we’ll definitely see something well north of $700. Possibly the highs that we saw 20 years ago.

ARTHUR BUCHNER: Well, we have a fantastic contrary indicator trade on our desk. About two and a half years ago my wife and her friends decided that gold was no longer really good jewellery, and they moved into platinum. And it started the first pull-back in platinum and it started the bull market in gold. So the minute my wife switches back into gold, we’re going to start selling. She hasn’t done that yet.

MONEYWEB: Hasn’t said a word?

ARTHUR BUCHNER: No, she hasn’t said a word. She’s still holding on to her platinum, which hasn’t done too badly, but when she switches into gold that’s when we’re starting to sell.

MONEYWEB: Well Barbara, there’s the next person to chat to in our gold slot – Arthur’s wife!

ARTHUR BUCHNER: She’s really good.

MONEYWEB: Well, Paul, it’s been delightful having you here. Thanks for coming into the studio, all the way from London.

PAUL WALKER: It’s a pleasure and good to see you.

MONEYWEB: All the way from London.

PAUL WALKER: Thank you.

MONEYWEB: Paul Walker, CEO of GFMS in London.

MONEYWEB, Alec Hogg, 05 September 2006

Mvela Group has got to be on your list.

MONEYWEB: Right now someone who has seen quite a lot of value creation in the year to June is Stephen Levenberg, who is the chief executive of the Mvelaphanda Group. Stephen, nice to have you on the programme. I don’t think we are going to be fencing tonight. We were fencing last time on potentially what you are going to be doing with this big cash pile of yours – R1.6bn it’s now sitting at. But there are no thoughts of giving that back to shareholders?

STEPHEN LEVENBERG: Thank you for your undertaking not to fence tonight, Alec. There is no thought at this stage of giving that back. Bear in mind we got the proceeds only about a week ago. There are a number of things to look at. We sort of waved the flag, so things are coming to us and we really believe that with this transaction done now, and these very solid and satisfactory results, we are better poised than any time in the group’s history to now really go ahead and add value to transactions and things shareholders are really expecting. In a sense it took longer than was thought. The merger was implemented in December 2004 so, if you like, it’s taken us 18 months to where we get the structure right, shed the non-core assets, get the cash in, sift through some of these smaller investments and really get the operations going. We’ve already done all that, as the result reflects, and we are well positioned now for the future.

MONEYWEB: You talk about the merger – that is the group that you’ve built, Rebserve, and at the time that you were building it many people were saying here comes the next Brian Joffe. Did you find that a fair comparison? Obviously you started a long time after Brian, but is that exactly what you were trying to do? Put together a conglomerate then and now?

STEPHEN LEVENBERG: I think there were similarities in the earlier days, Alec, and then the paths diverged at a later point. Certainly what Bidvest did was very successful, Bidcor as it then was, and that gave some pointers. But in the very early years we started off a lower base in the old Rebhold, which became Rebserve, and grew more exponentially than that. But we’ve really gone a very different path. So I wouldn’t say the companies are comparable in any way today.

MONEYWEB: So it’s not going to be the path of a conglomerate with wholly owned subsidiaries, but certainly your portfolio, the way it looks at the moment, is one where you do take investments but then you also have some operating companies. It’s almost a bit like what Warren Buffett does at Berkshire Hathaway.

STEPHEN LEVENBERG: Correct, Alec. Whereas the Bidvest story and Imperial might have 100% of heir assets focused purely on operations, we are almost a hybrid of the two, where the idea is to harness the cash flow which the operations generate – that was the original thought behind the merger, to harness that cash flow towards seizing the empowerment opportunities. We did not expect the relatively fortuitous event of disposing of an asset like Mvela Resources and getting a substantial pile of cash as well. In the event, we are very well positioned because we have the pile of cash for large capital transactions, and we have the cash flow as well. And, if you look at the component of the assets, we mention that we exceed R6bn in assets now. In value terms the investments are about twp-thirds of that, about R4bn, and the operations, the old Rebserve you referred to, account for about R2bn of that value. And logically those investments would, if anything, constitute an ever-growing portion of the value, and the operations would decrease in importance. And that’s where our BEE credentials come in, because the primary objective is to acquire BEE-related stakes, preferably on a leverage basis, in top-quality companies as investments, with the existing first-class management team in place. Assets like Absa and Life Healthcare are perfect examples of that, which are our two main investments.

MONEYWEB: So you are not looking, then, to start having wholly owned subsidiaries, or buying more wholly owned subsidiaries? This R1.6bn cash pile would be leveraged or geared up to make those kind of investments that you talk about, rather than owning whole businesses?

STEPHEN LEVENBERG: Alec, our preference is to do that because there we believe greater value could be added. If you look at Life Healthcare, for example, we invested R100m of our own cash and the valuation which we publish now in our intrinsic net asset value is about R1.1bn before provision for capital gains tax. So in just over a year that value has increased from R100m to R1bn-plus.

MONEYWEB: That’s astonishing. How’s that been achieved?

STEPHEN LEVENBERG: That is a spectacular example that that is achievable. How it was achieved was the business itself was bought for about R3.5bn by way of a public tender or auction, so we didn’t get any BEE-type discounts. R1bn of equity was required. We started off by acquiring 25% of that, needing R250m for our equity, and we leveraged that up with the IDC in a special-purpose vehicle, whereby we only put in R100m and dilute it slightly. So we got gearing upon gearing, and our R100m bought us, in the vent we have an 18% stake in Life Healthcare and the R100m bought us that, and that was out total exposure – R100m. And in the meantime the earnings of that company have gone up substantially, probably 60% or 70% in line with the market over two years. The rating’s gone up, the JSE has gone up, and the management team performed exceptionally well.

MONEYWEB: Is there a risk to this? In other words, if you were to do a similar kind of leveraged investment in a company that didn’t succeed or, in fact, worse still, went bust?

STEPHEN LEVENBERG: We contract typically out of that risk, Alec. For example, in Life Healthcare we put our R100m down, and the gearing was ring-fenced in other words, there was no recourse on that gearing back to our balance sheet at all. We insisted on that. So our maximum exposure at any time in that transaction was R100m. If it had become valueless, that would be the case. That is usually available in these BEE deals, or in these leveraged deals. So you get the benefit of the leverage, and there’s a higher risk and a higher return. But we would never bet the farm on the one transaction. So we approach each transaction on its merits, and where we apply leverage like that we limit our exposure normally to what we actually put in.

MONEYWEB: So you are taking advantage of the situation that exists in South Africa at the moment, where there is this move towards BEE, hopefully along the road creating a massive black-owned industrial group?

STEPHEN LEVENBERG: Correct. Although how I would argue it, it doesn’t depend solely on BEE. And with the progression of the group as we’ve described it now, it’s really a  company that stands scrutiny on its investment merits. It’s trading at a major discount to its NAV. I think as an understanding permeates the market, the market might well rectify that. And with those fundamental merits in place, it happens to be a company with impeccable BEE credentials. So it’s not am empowerment company looking for a discount or a handout. It’s a company that’s very strong on its own merits and has impeccable BEE credentials.

MONEYWEB: So it finds good businesses, leverages up the investment, and in that way makes sure that the money that you have works a lot harder than it would otherwise?

STEPHEN LEVENBERG: Correct. Typically it leverages it up. It doesn’t mean we wouldn’t do a deal without leverage. And just to get back to your earlier question, we would bolt on acquisitions in our operating businesses as well, but that’s our ideal model that’s been successful. The Absa investment as well, because it’s an option, also has an element of leverage as well.

MONEYWEB: Just to close off with, can you tell us any more now about the kind of sectors you are going to be targeting with this R1.5bn-plus in cash?

STEPHEN LEVENBERG: I thought you undertook not to pry …

MONEYWEB: I’m not fencing. I’m just asking a nice little question.

STEPHEN LEVENBERG: Nothing really, Alec, at all. We had a number of things we were looking at. We had to wait for the money to actually arrive, as I mentioned, and we expect new opportunities to arise as well. We are reasonably flexible, but we are out of resources anyway, and we are really in industrial and financial in the broad sense.

ARTHUR BUCHNER: Alec, one of the interesting things about the Mvela Group is that they not only have the share, they also have the Mvela Group convertible which they’ve issued. Now, for the investor out there that doesn’t understand a convertible, basically it’s a share that pays interest per annum, but it has a [indistinct] option attached to it. So if you are a risk-averse investor, you rely on 5% return per annum out of your investment, but you also want to gear yourself up to a stock that you believe is going to outperform, you have an underpin, which is R10 on the Mvela Group convertible – and if the stock had to outperform, you have a huge gearing on the upside. So no downside, except for your cost of funding, but you make 5% per annum. And another stock that has a convertible pref on that is Amplats. That convertible pref listed at R100 about two years ago. It’s now trading at R298. So the underpin was R100 and, with Amplats outperforming, it’s made a helluva lot of money for investors. The same with Mvela Group, and I think they are actually trading at a discount to intrinsic value – the convertible – at the moment, R10.50 or R10.60 I think. It’s another avenue into this food group.

MONEYWEB: Well, there you have some insights from Steven Levenberg and Arthur Buchner. And if you think that the bet is well-run business that can take advantage of the current environment in South Africa, then Mvela Group has got to be on your list.

MONEYWEB, Alec Hogg, 05 September 2006

Piet discusses Sasol, DigiCore and the Mvela Group.

MONEYWEB: Piet Viljoen joins us now for tonight’s look at investment insights. He’s with Regarding Capital Management. Piet, we need to just concentrate a little on Sasol – information coming to hand today that Sasol is writing off the Condea investment. When they made the investment initially, were you one of the critics?

PIET VILJOEN: Yes, I was. It seemed to be a very high price they were paying at the time, and the rand was also very, very weak at that stage, if I remember correctly.

MONEYWEB: And the thought then was, as Arthur Buchner from Nedbank Securities said earlier, stick to your knitting, you are really good at making oil from coal, don’t get too heavily invested in European chemicals.

PIET VILJOEN: Yes, but I think one has to cast your mind back to what conditions were at that time. The oil price was quite low, and experts were forecasting it would remain very low for a long time, and I think Sasol’s strategy at that time was to diversify away from producing oil and get into the chemicals business. You know, with the oil price at $80 and all the experts agreeing that it was going to go to $100 or higher, I think Sasol have changed that strategy.

MONEYWEB: But are they going to be selling out of chemicals entirely?

PIET VILJOEN: I don’t know if they are going to be selling out of chemicals entirely, but they are selling out of a large proportion of their chemicals business. I doubt whether they will be selling out of it entirely.

MONEYWEB: Now Piet, this is a lot of money that they’ve lost – nearly R3bn. There was a write-off also on Condea last year. Do you think there are going to be any implications for those who took the decision?

PIET VILJOEN: I doubt it. It’s five years ago. People tend to forget that sort of thing, especially when the share price goes up a lot, because there are factors outside the control of management. People tend to forget that thing. So I’d be surprised if anything does happen. You must remember that the owners of Sasol are basically the large index-tracking fund managers, and generally those people don’t act like owners. So the management has a free rein to do what they think is best.

MONEYWEB: Doesn’t this make a bit of a nonsense of executive remuneration, bonuses and …

PIET VILJOEN: Well, you must remember the share price of Sasol was up almost threefold over the past couple of years, so investors have done well by Sasol, and that tends to paper over a lot of cracks.

MONEYWEB: But that’s the oil price that drove that, not in fact anything that’s been brilliant.

PIET VILJOEN: Well, I think you’ll get a different view from management.

MONEYWEB: DigiCore – we had a chat with Nick Vlok a little earlier. That’s a nice little business, Arthur was also saying earlier – 70c to R3.50, pretty good going.

PIET VILJOEN: It is. Definitely a growth business, the way the crime situation is going at the moment. It seems to be going great guns at the moment – and no pun intended.

MONEYWEB: And the Mvela Group? We’ve got Stephen Levenberg in the studio. They are sitting on R1.6bn in cash – nice place to be. Fully empowered company, so no restrictions on what they might decide to buy. What would your tip be on Mvelaphanda Group?

PIET VILJOEN: My tip for them to buy, or my tip on the share itself?

MONEYWEB: Both.

PIET VILJOEN: I wouldn’t pretend to be able to advise on what to buy, but I am sure that a company with the sort of BEE credentials they have and cash is in demand. And they would be able to buy assets at good prices. So, yes, you are quite right when you say they are in a very powerful position.

MONEYWEB: Is it your kind of a stock? It’s got a net asset value of R12.05. The share price today was up nicely, 22c, but it’s still sitting at R8.80, so quite a big discount.

PIET VILJOEN: Yes, it’s trading at about a third discount to net asset value. The problem with Mvelaphanda is they need to demonstrate a track record of dealing fairly with shareholders before they can close that discount to net asset value. If you can compare to Rembrandt, which has a very long track record of fair dealing with their shareholders, and they trade at a 15% discount to net asset value, it’s probably not surprising that Mvelaphanda should trade at that discount.

MONEYWEB: How would they achieve that?

PIET VILJOEN: By consistently doing the right thing over a long period of time.

MONEYWEB: Buying the right companies, making the right transactions, giving back the cash when they can’t use it?

PIET VILJOEN: Yes, I think there are certain things companies do over time that show that they are acting in the best interest of all stakeholders, and they need to do that consistently through time. And it’s only time that will allow them to do that. I can only wish them good luck in that process.

MONEYWEB, Alec Hogg, 05 September 2006

The Iran situation in an investment perspective. ‘Kofi Annan should do his homework before he goes there.’

MONEYWEB: You’ve got to look at broad trends, Iraj Abedian, and particularly with the kind of work that you’re doing now – former chief economist at Standard Bank, but now you’re running your own company, Pan African Investments, which suggests that you’re looking at the African continent – and it still is a bit of a long-term story.

IRAJ ABEDIAN: Certainly, all the sections of [indistinct] becoming more and more short term still, and the spectrum is quite wide. Definitely the big opportunity is long term.

MONEYWEB: The future also belongs to those who try and work out what’s going to happen, and that’s really what we want to talk to you about tonight. You do hail from the Middle East originally, from Iran, and this week we had the meeting between Kofi Annan, UN Secretary-General, and the President of Iran, Mahmoud Ahmadinejad, and we have discussed him before. Your description of Mr Ahmadinejad was a little similar to George W Bush.

IRAJ ABEDIAN: That’s right. They both have a sort of Messianic attitude towards life. They’ve been brought to fulfil a particular mission, and they are very convinced of their mission. They do not want to be confused by facts or side issues, and in that sense they pretty much match each other from an ideological point of view, which is highly dangerous in the global conditions that we are in.

MONEYWEB: Just to put it into an investment context. When we saw 9/11 – in fact it’s now five years ago, September 2001 – the impact that had on the business environment was catastrophic. We’re only now coming out of the aftershocks, if you like, from an inflationary perspective. So, these big geopolitical events do have a direct effect on people’s money.

IRAJ ABEDIAN: Absolutely. They destroy wealth at a rate like nothing else, effectively, very, very quickly, but very importantly, depending how it happens and where it happens, they have medium- to long-term consequences. And the situation in Iran and the Middle East broadly is really related to the very concentrated oil conditions in the Middle East, because the situation in Iran is bound to affect the Gulf States – that includes the United Arab Emirates, Qatar, Bahrain, Saudi Arabia. Iraq is already in trouble. And that could be as catastrophic as anything for the global economy. That’s not just a question of geopolitical instabilities. It is also about a major commodity which would have a systemic effect on the global economy.

MONEYWEB: Systemic effect? What does it mean?

IRAJ ABEDIAN: That means that no economy will be spared in one or another way. You’ll have Japan highly dependent on the Middle Eastern oil, just about 100%. It’s now, depending on how you define it, either the second- or the third-largest economy on the globe, just coming out of years or decades of trouble, for the first time it registers growth, positive growth, current unexpected. If anything happens in the Middle East, the Japanese economy is really coming to a halt. And if it doesn’t, it would have to pay huge prices for its imported oil. Now you get China, very much dependent on imported oil, very much dependent on Iran, particularly. Saudi Arabia also.

MONEYWEB: And here at home …

IRAJ ABEDIAN: Here at home, we’re actually much better off than many countries because of Sasol. And yet, we’re not going to be spared. Nobody is going to be spared. When you have a global economy which is as integrated as we have become, it’s literally impossible, whether you’re an Ireland economy, whether you’re a US economy, you’re going to feel it. So, that whole thing weighs heavily on the minds and thoughts of the strategists, on the minds of portfolio analysts who have to take a strategic medium-term position, not too many type of in and out, 70c and 85c. But if you want to take a position which you know has got to be a three- to five-year position, you’ve got to think very, very carefully about these issues.

MONEYWEB: And that’s what investing is supposed to be about for most absolute-return investors

IRAJ ABEDIAN: Absolutely.

MONEYWEB: Let’s look at Iran itself. The world’s attention is most definitely on the Middle East right now, and particularly on Iran. And if you consider, perhaps we can just start with the funding of Hezbollah, which is the organisation that is, I suppose, behind, depending on which side of the fence you’re at,  the problems in Lebanon at the moment.

IRAJ ABEDIAN: That’s right.

MONEYWEB: How do they justify the funding? What’s motivating Iran to make mischief in that  way?

IRAJ ABEDIAN: I think they don’t see it as a mischief. They see it as a mission. Very much if you go back to the Christianity and Middle Ages, when missionaries were being dispatched from Spain to go to Portugal and Mexico and Bolivia and the rest, they didn’t see it as mischief. They saw it as a mission you’re created to fulfil, and if you see it in that context, what the West sees as mischief, for Iran and for the Iranian regime is seen as a way of countering and fighting injustice, historic abuse of the sources and people who happen to be of the same religious beliefs. So, I think that is the dimension that should be seen as the key driver of whatever investment Iran does, whether it is in Iraq or whether it is in Palestine or in Lebanon and in the neighbourhood.

MONEYWEB: Now, during the Middle Ages the Christians did something similar, there was no stopping them. Is there any way that Iran can be brought around a table, perhaps to change its mind on this mission?

IRAJ ABEDIAN: I think again, if you want to change Iran’s mind, you’ve got to see the world from their mind. You’re a country surrounded by atomic powers – Pakistan, Russia, Israel – what’s good for the goose is good for the gander. You’ve got to see it in that context. If it is not good to have nuclear power, why is Pakistan supported by the Americans? So, it’s not about that. It’s about something else. It’s about control of the region. There has been historical British, French and, more recently, American domination of the powers in the region. For example, Saudi Arabia, which has got religious significance for the Moslem world, is pretty much under the control of the White House. Not now – it’s been there for decades. And it has implications for the use of economic resources. It’s got implications for the balance of power. It’s got implications for the ease with which Americans can invade Iraq, if that power base did not exist. So these are the issues that run the emotions and the strategies of the Iranian regime and, unless those issues are dealt with on a sustainable basis, any form of threat or palliating of short-term nature is going to be just that – short-lived.  And we see an example of it in the Middle East itself. We see decades now of trying to find short-term solutions to a fundamental, structural issue, which has got historic, religious, political, as well as geopolitical roots. So we need to deal with the issue in a far more sophisticated and nuanced way, and find a sustainable solution.

MONEYWEB: Now this week, or the past week, on the 31^st of August, was the deadline set by the United Nations for Iran to stop enriching uranium. In effect, Iran said to Kofi Annan, who he arrived there, sorry, but we aren’t actually going to be listening to you. And I’d like to just read you a quote, from the Financial Times of London. It reported on members of the UN delegation. They said after an hour-and-a-half meeting, the UN delegation and Kofi Annan were surprised by the hectoring tone, which left the UN delegation stunned and the Secretary-General more pensive than usual. It sounds like he went in there perhaps with a naïve view that the Iranian president would come to the party, but got precisely the opposite effect.

IRAJ ABEDIAN: Of course, because I think it is a naïve way of approaching the issue. Kofi Annan should know that his bosses are divided. Kofi Annan has got no power when China can veto, when Russia can veto, when Germany is not behind him, when Italy is not behind him, when Japan is unpronounced on him. So, he goes in there without a mandate, without a solid mandate. All he has is potentially UK, United States and France, those three, and the rest are either against or unpronounced. If you look at the economic interest of Italy in Iran, and Germany, there is no way that they are going to throw away their economic interests. And Iran known it. Kofi Annan should know it. And Kofi Annan should do his homework before he goes there.

MONEYWEB: And the hypocrisy which is also being brought out in the reports – the United States is quite comfortable to support India’s uranium enrichment programme, even though it hasn’t signed the Non-Proliferation Agreement, but on the other hand it is taking a very hard line against Iran. Is this all politics, is this all posturing?

IRAJ ABEDIAN: Well, even more so than India is Pakistan. Pakistan is a militant military nuclear power, not a passive one. And it has not hidden the fact that, if need be, they’ll use it, because India is too big. And the reason for Pakistan having developed and investing hugely in that technology is because they would use it. Now, George Bush uses Pakistan – billions of dollars of support for that government. Why? Because it suits them as a base to fight the Taliban in Afghanistan. And if you have that situation, it’s more than hypocrisy. It’s within the same region, the same neighbourhood. you have two standards.

MONEYWEB: Iraj, you know the region, you come from that part of the world, you understand geopolitics. Where is it all going to end up? I had a very smart guy saying to me recently, he thinks World War III is in the brew.

IRAJ ABEDIAN: It’s interesting that at the moment analysts in, certainly, London and New York and Washington are pretty much divided. There’s a group – and these are not your armchair analysts, these are your active consultants to governments in those powerful capitals, who exactly hold the view that you’ve just mentioned – that it is the beginning of a process that would culminate in a massive confrontation. Has it got the potential to develop? Of course, we have to be absolutely careful that we do not end up in a self-fulfilling prophecy, because if enough analysts advise Washington and London and Paris on that, you will end up with a self-fulfilling prophecy. And, as we know in the marketplace and the investment arena, expectations very often become self-fulfilling. In the political arena, it is exactly the same. So, can it go there? Very much so, if you want to deal with it in a crude way. Can it be averted? Yes, but it requires an awful lot of – again I’m using this term that you question – a lot of systemic changes. We’ve got to deal with the issues of the region, we’ve got to deal with the issues of double standards, we’ve got to come up with not grandstanding on either side, whether on American side or Iranian side. The issue is about humanity. The issue is not about the United States and Iran. It’s not about Christianity or Islam. It’s a much bigger issue. And we’ve got to approach it in that way and bring a lot of forces to bear in order to avert a massive confrontation.

MONEYWEB: And understand the issues, as hopefully we do. We’ve made some progress in that respect tonight. From an investor’s perspective, though, sitting at home, listening to this insight for the first time probably, understanding both sides of the story, what strategy do you adopt?

IRAJ ABEDIAN: It’s a very difficult situation. The absolute requisite backdrop for investment is assuming that a political situation is going to be stable, because if the political backdrop is unstable, everything else becomes unstable and value is destroyed. So I think, from a portfolio investment, there isn’t much you can do. But from a strategic investment you’ve got to certainly hedge against a whole lot of stocks and investments that are all dependent, hedge them against the substitute energies, etc, etc, over a three- to five-year period, bearing in mind that, even if they go the route of confrontation, it is not going to be a six-month affair. There is going to be a lead time, there will be some space to hedge and to get out of it, but it will be a huge loss, because you won’t be the only one who wants to do that. Everybody will want to do the same thing, and when you get that, value is lost at a rate like never before. And that’s my concern.

MONEYWEB: What about an investor who’s got a lot of money tied up in Sasol, which has huge investments in that area, Qatar, also in Iran itself – and MTN, which is moving more aggressively into Iran at the moment?

IRAJ ABEDIAN: That’s right. I think those assets might not be adversely affected as one perceives them. In fact, MTN might not be affected in Iran at all, or Sasol’s operation in Qatar, which is gas-based. Where investments will be more adversely affected would be in countries like Japan, where energy will hit them hard, and the value of assets will be destroyed. All dependent countries, whether developed or undeveloped, or developing, will be hardest hit, and assets will be fastest destroyed, than the country itself.

MONEYWEB: Iraj Abedian, the chief executive of Pan African Investments, and not an alarmist by any issue, painting a picture that Arthur Buchner, even with your long-term view being two minutes, has got to be a little worrying?

ARTHUR BUCHNER:  Well, you know, at the end of the day, do you suddenly start climbing into defensive stocks, and do you get out of countries that rely on resources and stay in countries that manufacture resources – because essentially the view seems to be those that are dependent on other countries that are producing resources are going to have systemic risk attached to them – or do you believe that there won’t be a World War because we have got enough peacemakers and information dissemination that people can get around a table and actually sort it out. Well, that becomes then a fundamentalist view, and I think that what we saw in World War I and II is that there wasn’t the ability to get around a table quickly. It took you three days, four days, to get to London. It took you five days to get from London to Germany. Now, you get on a plane, you fly over there and say let’s sit down and let’s negotiate this whole thing. Maybe that can be the saviour at the end of the day.                    

MONEYWEB: For humanity’s sake, let’s hope that sanity does prevail, but it still is a risk, and that’s what investment is all about – realising what the risk is.

MONEYWEB, Alec Hogg, 05 September 2006

DigiCore develops on-board computers that go into vehicles.

MONEYWEB: Nick Vlok, the chief executive of DigiCore is with us in the studio. Is Arthur on the money there? One to watch out for in the future? You’ve had a good run, Nick.  

NICK VLOK: Thank you. Yes, very much so, Alec. I think we were very fortunate if we look back over even the last four to five years. We’ve just been chipping away, just doing the same thing, quicker, better, faster and just building organically.

MONEYWEB: “Quicker, better, faster” – sounds like a bank!

NICK VLOK: Sorry, that’s not what I meant.

MONEYWEB: What is the business of DigiCore?

NICK VLOK: Alec, we really design, develop on-board computers that will go into vehicles; we then build them in our factory in Durban, sell them through to the end user and put people in a position where they can actually monitor their vehicles and know exactly what drivers are doing. We’ve also diversified into the start-up vehicle-recovery market in the last 12 months, so that is really where we see the growth coming from in the next couple of years.       

MONEYWEB: Unit sales are up 52% – is that because petrol prices have gone so high that people now have a bigger incentive to follow what happens to their vehicles?

NICK VLOK: That would definitely have been one of the factors that did play a part in our growth, Alec. You’ve got to manage your fleet much better than in the past, just purely from a cost point of view. Vehicle sales have also been dramatically up over the last two years, in actual fact, which also helped and made some contribution to the growth in the business, yes.

MONEYWEB: You’ve mentioned that you’re in the vehicle-tracking industry now as well. Can you give us your perspective  on what’s happening with crime or the theft of vehicles in South Africa?

NICK VLOK: We were involved recently with an organisation called Business Against Crime, which I think everybody is fully aware of, and some of the figures that were disclosed to us at that stage really indicated to us that it might have come down slightly, but it is still extremely high. And when I say slightly, I really mean slightly – 1 or 2%.

MONEYWEB: So. It’s a problem and we need this war against crime to be maybe accelerated a little.

NICK VLOK: I think so, and this is why we’re there.

MONEYWEB: Having a look to the future, Arthur seems to think that even though your share price has gone strongly, it’s worth holding or maybe even, Arthur, buying stock still?

ARTHUR BUCHNER: Well, it starts to move into a couple of asset managers’ vision. When it’s a 70c stock, it’s relatively illiquid and it’s a small cap and guys don’t want to touch it until it actually shows that it could actually produce a couple of earning coming through. Now that it’s into the R3 stock, the market capitalisation is starting to be more enticing to asset managers, and not just to the small-cap funds

MONEYWEB: So you have to do more of a roadshow now and talk to more of the professionals, Nick?

NICK VLOK: Yes, it seems like it, Alec.

MONEYWEB: And what would you say to your investors, those guys who got in a 70c and have had a fantastic run? Do they stick with it?

NICK VLOK: No, I think they should hang in there, Alec, most definitely. I think, again, you know, if you look at the vehicle population out there and I think you know as well by now we’re currently in 21 countries abroad, the market scope and opportunities are still extremely big, huge.

MONEYWEB: So, the opportunity’s not only in South Africa, where I guess market share growth is possible, but places like Pakistan, Europe and so on.

NICK VLOK: Your memory is quite good, yes. Pakistan has been one of our star performers for the last three or four years. Also, obviously crime-related. If you look at Europe, cost-driven, expensive labour on that side, so they need to manage their people relatively well.