STANLIB RESOURCES FUND

The view on iron ore is no different at Investec Asset Management. “We’re negative on iron ore, and this has informed our assessment of more high-cost producers like Assore and Kumba,” says Daniel Sacks, manager of the Investec Commodity Fund.

He thinks the huge miners based in western Australia will be increasing supply faster than China’s steel demand can absorb it: “In this scenario, the price has to settle lower in the future.”

This view has also informed his opinion of Anglo American. “It is in the process of bringing production at [Brazilian operation] Minas Rio, which will be comparable in size to Kumba. Like Kumba, this will be towards the middle to top end of the cost curve. That’s not where you want to be in this environment,” says Sacks.

It’s not just iron ore that has informed his opinion of Anglo American. “With reference to De Beers, we are seeing weakness in diamond pricing, and there is no free cash flow coming out of Anglo American Platinum. So we think the dividend will be under pressure,” says Sacks. He believes it is unlikely Anglo will cut the dividend — a decision that had catastrophic consequences for the company in 2008. But it will result in the share price hitting new lows.

As you can probably infer, there is not much love for platinum producers either: “We dislike the three majors (Amplats, Implats and Lonmin). The market is discounting higher prices than we think are likely,” says Sacks. The absence in the portfolio does not extend to the smaller producers, including Aquarius and Northam.

The fund’s preferred investments among the diversified miners are BHP Billiton and Glencore, the latter largely on account of its lack of exposure to the steel complex.

Sacks says the fund will remain a holder of South 32, the product of BHP Billiton’s demerger, which recently listed on the JSE. “It’s a little bit like Sibanye — it looks cheap, but many of its assets have fairly short life-of-mines which will have to be extended in a few years’ time.

“They are also heavily exposed to SA, which has a very tough operating environment at the moment. But we like the mix of commodities in its portfolio.”

One position that has been added to recently is Sasol. “We have been buyers this year on the basis that the prices it receives for its chemicals have stood up better than the market has been expecting,” says Sacks.

In contrast to the platinum majors, the fund does have holdings in a gold major — AngloGold Ashanti. “It’s our favourite among the offerings. It has had it rough for a long time now, and we are encouraged by its disposal programme,” says Sacks. The company plans to sell some assets — Sacks thinks its North American operation is a likely candidate — in order to pay down debt. It has also been reducing unit costs in an otherwise challenging environment.