Is there some new hope in the mining sector of South Africa? Have a look at these articles below. Enjoy the read!
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Mining Indaba: There’s a new sense of hope Delegates want to be optimistic about South Africa.
By Patrick Cairns on the Moneyweb website
“Over the last few years, a recurring theme at the annual Investing in African Mining Indaba has been the uncertainty in the South African mining industry. Primarily, this has been around regulatory and legislative issues that have made investors very wary of committing any capital to the country.
This year, that theme has certainly not gone away. In 2017 the Minister of Mineral Resources, Mosebenzi Zwane, unilaterally announced a new Mining Charter that significantly shifted the requirements for black ownership and employment equity at mining companies, as well as the companies from which they procure any goods and services. The Chamber of Mines very quickly launched an application to have it set aside, and their case will be heard later this month.
At the same time, the Mineral and Petroleum Resources Development Act (MPRDA) Amendment Bill remains an issue. It has been pending since December 2012, and has become so controversial it is inevitable that if it were ever to be signed into law its constitutionality would be challenged in court.
Investor reaction
As managing partner at Baker McKenzie, Morne van der Merwe explains, these two matters continue to create a great deal of uncertainty in the local mining sector.
“The issue with the 2017 charter is that there is a substantial departure from some of the principles that were agreed [on] and applied for a long period of time under the 2010 charter,” says Van der Merwe. “And the fact that there wasn’t proper consultation meant that there wasn’t acceptance, which led to this situation where it is being challenged in court.”
With the MPRDA Amendment Bill, the industry’s primary concerns revolve around its progress through parliament and its lack of clarity.
“Poorly drafted legislation creates two problems,” says Jonathan Veeran, a partner at Webber Wentzel. “The first is that administering the act becomes problematic because if I don’t know what the act means I can’t administer it. And, similarly, the person who needs to comply with the act doesn’t know what they must comply with.”
Van der Merwe says that he has personally seen how the uncertainty created by the MPRDA has impacted on investment.
“We act for certain international companies in the mining sector who five to seven years ago were looking very seriously at further investment,” he says. “They were even looking at developing beneficiation plants, which would have led to creating jobs, which in turn would have led to the kind of socioeconomic development one would ideally want to see, but that all came to halt. They said we cannot spend another cent on further investment. I saw that decision making process and at the core of it was uncertainty.”
New optimism
However, there is also a sense at this year’s indaba that things may be changing. Cyril Ramaphosa’s election as ANC president and the way he is already making his influence felt in areas such as the appointment of a new board at Eskom are creating optimism that the troubles in the mining sector could also be tackled.
“I think there is hope,” says Veeran. “Generally there is a sense in the industry that things are going to change.”
During his recent trip to the World Economic Forum in Davos, Ramaphosa said that if the Mining Charter is standing in the way of the development of the mining industry, then it needs to be looked at. This could not happen without Zwane being moved out of the portfolio.
Ramaphosa is also particularly well placed to deal with issues in mining because of his history with the National Union of Mineworkers. He understands the industry and what it needs to be successful. This is giving many people renewed confidence.
“You could get to a tipping point quite easily, where we can can come off this very negative path,” says Van der Merwe. “I think these are exciting times for the mining sector. I’m feeling much better now than I felt a year back. There are signs of positive change.”
A proper business case
Reinvigorating the industry would however not only require sorting out the regulatory and legislative concerns, but also dealing with the dysfunction at the Department of Mineral Resources and resolving issues in the bureaucratic system.
“You don’t just need to fix the rules,” Van der Merwe says. “You need clear and efficient administration in how you apply them.”
Mending the trust deficit that has grown between business, near-mine communities, government and labour is also imperative.
“I think all of those parties need to come together and reassess what’s important,” Veeran argues. They need to rebuild trust, because unless they are all working together no project will ever get done.”
There is however a clear sense that these goals are now achievable, and if they are, this country will have a lot to offer.
“South Africa has the best endowment of mineral resources in the world,” Veeran says. “As technology develops we can also mine deeper, access other ore bodies, develop ways to use water more sustainably and make less of an impact on the environment. We need to take advantage of that. We must encourage mining companies to come back. And if we make a proper business case, I think we will.””
Ramaphosa a double-edged sword for mining companies
By David McKay on the Fin24 website
“The so-called Cyril Spring has certainly put some esprit back into the SA mining sector.
Roughly two months after Cyril Ramaphosa’s election as president of the ANC, it feels as if nine years of Jacob Zuma-linked skulduggery has been swept away.
Although not given to emotional excess – or indeed much emotion at all – international banks and brokerages are talking of re-ratings of South African mining stocks, Anglo American principal among them.
“Anglo American’s valuation is at a 25% discount to its UK peers which, in our view, largely reflects an SA discount; however, we highlight signs of improving SA regulatory risk,” said JP Morgan Cazenove on a note about Anglo’s 70% owned Johannesburg-listed subsidiary, Anglo American Platinum (Amplats).
Chris Griffith, CEO of Amplats, told finweek that political developments, not to mention the company’s own rehabilitation of its balance sheet, could completely alter how international investors see both his company, and Anglo as a whole.
“It [regulatory change] is certainly helping Anglo’s case for being a shareholder in platinum group metals [PGM],” he said. “The current political environment is very positive.”
The events of mid-February have been especially seminal in changing the investment mood. President Ramaphosa announced during his maiden State of the Nation Address on 16 February that he would “intensify” discussions about a redraft of the Mining Charter which, at the time, was heading for a three-day High Court review.
Two days later, the Chamber of Mines scrambled its PR machine to announce that the court review had been postponed because Ramaphosa wanted a negotiated outcome.
Tebello Chabana, senior executive director for public affairs and transformation at the Chamber of Mines, described the postponement, which came after Ramaphosa’s personal intervention, as “a leap of faith”, but investors are bullish.
“The emergence of a more pro-business ANC should allow for an improved operating environment,” said RBC Capital Markets, a Canadian bank.
Said Goldman Sachs in a recent note: “Mr Ramaphosa has a reputation for being market friendly and this has seen investors getting interested in SA after a long time.”
The bank cautioned, however, not to get carried away: “We believe that the rally [in SA mining stocks] is premature and that any structural changes related to miners are likely to take time and in the meantime, a stronger rand will hurt the margins and cash generation of the SA miners, especially gold miners.”
Rand strength
South African mining stocks benefit when there are political shocks, because their costs are in rand but the price received is dollar denominated.
It makes for a dubious business case that while political strife weakens the country’s business environment, it strengthens short-term revenue.
Speaking at the firm’s December quarter numbers, Harmony CEO Peter Steenkamp said the weaker rand per kilogram gold price “…simply served as a reminder to reassess excess costs – if any – and to cut back on expenses that do not support the core business”.
At the time of writing, the company was receiving R90 000 less per kilogram of gold produced owing to a combination of a weaker dollar gold price and the stronger rand – which strengthened by more than 14% in the past two months.
In the case of Petra Diamonds, which has most of its production in South Africa (it has a single diamond mine in Tanzania), the strength of the rand contributed towards it holding back some $60m in capital expenditure. “We will have to spend that later,” said Jacques Breytenbach, the firm’s chief financial officer.
He also conceded that “significant further strengthening of the rand will affect our liquidity”.
Petra posted a pre-tax loss of $95.2m in the six months ended December from a previous interim profit of $51.6m, although it’s important to add that a large portion of the loss was from a write-down.
Some precious metal firms listed in Johannesburg are less negatively affected by rand strength.
Moody’s reported that the net effect of the stronger rand was not too much of “a damper on profitability for AngloGold Ashanti’s remaining SA gold operations, Gold Fields’ South Deep gold mine, and Sibanye-Stillwater’s SA gold and PGM operations”.
“Over the same period, the US dollar gold price along with platinum and palladium prices have appreciated as the rand has appreciated. This led to prices in SA rand being broadly stable,” it said. Amplats’ Griffith acknowledged the same dynamic, but added: “If the rand appreciates heavily, we will just manage the business.”
What does seem apparent, however, is the long-term effect an improved regulatory environment could have on Anglo. Several analysts have pointed to the possibility that an easing in the business environment could assist Anglo in setting about fresh corporate activity.
Said RBC Capital Markets: “There is also a likelihood that Anglo, should it desire, could make structural changes to its corporate structure that could streamline previous challenges like capital controls on South African profits.”
This article originally appeared in the 1 March edition of finweek.”