Peru and Chile eclipse SA amid investment shift
SA did not feature on the international investment radar as global mining grappled to regain investor trust as a good place to earn returns, said Jim Rutherford, a nonexecutive director at Anglo American.
In a typically blunt assessment of SA’s desirability as an investment destination for resources funds, Rutherford said the country had dropped off the radar, particularly as Peru and Chile showed the regulatory and policy certainty that underpinned investor confidence and showed companies could make sustainable profits there. He is a former longtime fund manager at Capital Group, a US-headquartered company that has $1.7-trillion under management.
“International mining equity investors have largely given up on direct exposure to South African mining.
“They get their exposure through Glencore, Anglo American and South32. The reasons you constantly hear is that they find the place too complicated, they don’t see an environment conducive to making returns, and they see better opportunities elsewhere,” he said.
Many of SA’s listed companies are too small for international investors.
Regarding the performance of six of the major global specialist mining funds over the past five years, Rutherford noted all but one had negative annualised returns of 5% a year, underperforming the average market by 15 percentage points. “In the investment world, by any standards, that’s a massive gap,” Rutherford said at the Joburg Indaba mining conference.
DOESN’T FIT IN
For SA and its mining companies, the picture regarding these six specialist funds is grim.
“Frankly SA doesn’t fit in,” Rutherford said.
“With one sole exception, these funds do not own a single SA-listed company. If you look at other smaller mining funds you’d pretty much see the same picture across the board.”
SA’s share of global capital expenditure had fallen to 3% in 2013/2017 from 9% in the five years to 2007, despite the country’s treasure trove of minerals, including platinum, chrome and manganese.
Chile and Peru have since strongly grown their share of global expenditure.
Against its mining peers, namely Australia, Canada, Peru and Chile, SA had fared particularly badly in three most recent competitiveness surveys by the Fraser Institute, the World Economic Forum and World Bank, Rutherford said.
SA had consistently scored poorly on the perception of and uncertainties around government policy, he said. Regarding mining output and employment SA, unlike its four peers, showed falling production and employment over the past 10 years.
“Within an industry that is trying to define the value equation and remain relevant, SA faces its own challenges. Investors have been put off both by lack of clarity and uncertainty around policy and, dare I say it, let us not forget the poor performance on delivery by several companies,” Rutherford said.
The release of the Mining Charter on September 27, and the high level of engagement by mineral resources minister Gwede Mantashe with the industry to draw it up, has sent a positive message, he said.
“But, the devil is in the detail and there are a number of areas where the charter is either ambiguous or unhelpful and is rightly being questioned,” Rutherford said.
“After all, it is investment — rather than ideology — that creates jobs. And investment follows only where it sees the prospect of returns, not the other way round.”
INTERNATIONAL MINING EQUITY INVESTORS HAVE LARGELY GIVEN UP ON DIRECT EXPOSURE TO SA MINING
INVESTORS HAVE BEEN PUT OFF BOTH BY LACK OF CLARITY AND UNCERTAINTY AROUND POLICY AND POOR PERFORMANCE