Gold mining stocks shine bright

SOUTH Africa’s index of gold mining stocks last week surged the most on record as the precious metal traded near a one-month high and the rand extended declines.

The gold mining index climbed 2 percent to 1 022.93 points by the close on Friday in Johannesburg, bringing its five-day gain to 28 percent.

Pan African Resources led the advance, adding 3.8 percent to bring its gain last week to 17 percent. AngloGold Ashanti was the best performer in the week, gaining 33 percent. Spot gold advanced 0.5 percent to $1 158 (R15 002) an ounce, the highest since July 13.

The precious metal has climbed 3.8 percent last week as investors scaled back bets on a Federal Reserve rate increase next month and a stock and currency sell-off in emerging markets spurred demand for safe assets. South African gold producers also benefit from a weaker rand because they pay costs in the local currency while selling exports for dollars, helping the index to rally from a 15-year low on August 6.

Recovery

“The gold stocks, particularly South African gold stocks, were undervalued, not only relative to the global peer group, but to the local mining index as well,” Arqaam Capital, the director of equity research Richard Hart said. “This has really been a recovery of some of that value.”

Gold Fields, South Africa’s second-biggest producer, advanced 4.5 percent to bring its weekly gain to 31 percent, while Sibanye Gold added 14 percent in the week, and Harmony Gold Mining 6.5 percent.

Gold stocks are outperforming the benchmark all share index, which has been battered by a slump in commodity prices and a slowdown in China, the biggest buyer of South African exports.

A wage settlement at gold mining companies may provide further support for the stocks.

While the two biggest mining unions said on Friday that wage negotiations had broken down, the chances of a protracted strike were low, Noah Capital Markets analyst Troye Brady said.

“We’ve had some really bad strikes over the last couple of years and my impression is that the appetite for strikes by workers is not as high as it was before,” Brady said.

“It’s a lose-lose situation to strike, and workers have realised, hopefully, that nobody wins in a strike.” – Bloomberg

PHOTO: BLOOMBERG Miners push a box of explosives several kilometres below ground at an AngloGold Ashanti mine. The company’s shares were the best performer on the JSE last week, gaining 33 percent.