Minerals are emerging from pit of despair
Mines report best growth since start of century
THE narrative of an industry in its sunset throes has been told so often in recent years that it has become a truth.
Mining companies have had a catastrophic few years, blighted by electricity restrictions that began in earnest eight years ago, fractious labour relations, rising costs and the slowdown in Chinese growth.
Geographically diverse miners, especially those with an insignificant South African exposure, such as BHP Billiton, have fared much better since the global financial crisis of 2008. Those exposed to the deteriorating economic conditions of the local industry have been punished as investors dumped them in favour of retailers such as Mr Price and Woolworths.
However, as markets close in on the first half of the year, the OPTIMISTIC: Lonmin CEO Ben Magara weight of a South African address has eased.
Miners, which in the past decade have been outshone by retailers and financial stocks, have reported their strongest growth since the turn of the century, with Anglo American more than doubling in value this year alone.
Gold and platinum stocks — including those of the poster child for the struggling South African mining industry, Lonmin — have outperformed the market this year, but prices are still some way off the record highs before the collapse of US investment bank Lehman Brothers in 2008.
Lonmin CEO Ben Magara said: “We are doing what we promised we will do and it augurs well for the credibility of the company. The positive momentum, if it continues, is definitely a good thing for the company.”
Since the beginning of the year up until afternoon trade on Friday, the overall mining index on the JSE has gained more than 25%, compared with a 7% rise in the All Share. Platinum shares have gained 97%, their RICH REWARDS: A mineworker drills a rock face at the Impala Platinum mine in Rustenburg. The price of the metal has rebounded this year best performance over this period since 1995, according to Bloomberg data. The metal’s 15% rise in price is its best performance since the start of 2010.
Miners have been boosted by stable to increasing commodity prices this year and a growing belief that the bottom may have been reached for some metals. Further benefiting South Africa-based resource firms has been the rand’s more than 40% depreciation against the dollar since the end of the US Federal Reserve’s quantitative easing in October 2014. In that time, Australia, another mining economy, has seen its currency weaken only 18%.
Lonmin, which has had to undertake three rights issues since 2009 and lay off about 6 000 of its workforce, this week reported an improvement in interim results, boosting its shares.
Its stock has more than doubled this year and, in the past week alone, risen by just under 20%.
Lonmin’s woes started more than a decade ago with an illfated and expensive journey into mechanisation, compounded by fractious labour relations culminating in the Marikana crisis of 2012, in which 34 mineworkers lost their lives.
The World Platinum Investment Council said this week that this year’s platinum deficit would be 455 000 ounces, about 320 000 ounces more than it forecast in its December quarterly report.
Since companies were unlikely to immediately increase production, said Northam CEO Paul Dunne, the deficit was being filled by recycling and ground stocks.
Dunne said that to keep up the good sentiment behind high platinum prices, South Africa needed to show investors that there was labour stability and legislation certainty.
Makwe Masilela, portfolio manager at BP Bernstein, said that although demand was not as good as in pre-2008 times, it was a good sign. He said platinum producers would have to be cautious not to overproduce and cause an oversupply again.
In the gold sector, the index has doubled since the start of the year, the most recent comparable event occurring in 2002. Bullion has gained over 18% this year, its best rise in a decade.
Hanré Rossouw, head of resources at Investec, said there was renewed global interest in gold as a safe haven.
“When we talk to Chinese investors, they are worried about the Chinese stock market . . . I speak to American investors, they are worried that Donald Trump will be the new leader of the free world — they buy gold. I speak to German investors, they are worried that if I put some money in the bank, they charge you to keep the money safe — they buy gold.”
While prospects are improving for both platinum and gold, which combined are South Africa’s biggest export earners, the industry’s contribution to the economy had shrunk since the start of the century. Mining’s contribution to GDP was 7.5% last year, compared to 8.5% in 2008. In 1994, its contribution was almost 15%.
Chamber of Mines CEO Roger Baxter said the industry had been affected by multiple problems, including grappling with legislative requirements.
“I am fairly comfortable that we are probably reaching inflection points and we just have to make sure we don’t have further hiccups on the way.”
For platinum, wage talks next month are the immediate hurdle. The five-month strike in 2014 was the most expensive in South African history.
The Association of Mineworkers and Construction Union says it will enter talks looking to leverage recent gains in the industry. “We are coming out of a very bad spell. The economy is turning and whatever gain that is on the table should be shared by the people that make it possible,” said union spokesman Manzini Zungu.
Magara said he was optimistic the negotiations would go better than in 2014. Unions needed to negotiate hard for their members but also needed to consider the real problems that had affected the industry, he said. Comment on this: write to letters@businesstimes.co.za or SMS us at 33971 www.sundaytimes.co.za