Bad day at the office for SA mining shares

[miningmx.com] – JULY 8 was a day to forget for South African mining shares as a 10% slide in iron ore wreaked havoc with Kumba Iron Ore, and Lonmin slid to its lowest level in five years, while the most vulnerable of all – the country’s beleaguered gold firms – were edged closer to a strike by the Association of Mineworkers & Construction Union (AMCU).

The impact of years of public and private debt in China, intended to keep the economy at its targeted growth rates, has spilt into the equities market with the Shanghai Stock Exchange Index down 33% in just three weeks.

“I suppose the main question is whether this is a bigger story than Greece, said Jim Reid, an analyst for Deutsche Bank’s Fixed Income Research.

“Our answer would be that a free-falling Chinese economy (if it came to that) would be much more important than a ‘Grexit’ for global markets,” he said.

“We’re not at that stage yet but if the authorities aren’t able to stabilise things soon then there will be collateral damage so this is a crucial story to watch,” he said.

The effect of events in China on commodities, given their reliance on Chinese growth, has seen a harrowing slide in iron ore which is down 10% so far today – described by Saxo Bank as perhaps its biggest single daily decline – and 25% this week.

Shares in Kumba Iron Ore, in which Anglo American is the majority shareholder, fell 5.36% today on the Johannesburg Stock Exchange which means the company has shipped roughy R14bn in value over the past seven days as investors bailed.

Another iron ore producer, African Rainbow Minerals, shed 3,35% today taking its losses over the last month to 22% and some 60% in the last 12 months whilst Exxaro Resources, which owns 19% of Kumba, fell 5.5%.

The Bloomberg commodity index which tracks 22 raw materials, is down 7% so far this year and during the last three days it has lost 4.2%, the most since 2011, said Saxo Bank’s Ole Hansen, head of commodity strategy.

“Oil, which is already hamstrung by a global supply glut and Saudi Arabia’s effort to drive US shale producers out of business, yesterday saw the biggest drop in a single session in five months,” he said.

The slow-burn Greece crisis, which if it exits from the Eurozone could map a path for the exits of other smaller economies in the union, is dampening sentiment in a market crucial for consumption of platinum autocatalysts.

Anglo American Platinum and Impala Platinum both lost ground, as did Northam – down about 4% – whilst Lonmin sank to its lowest level in at least five years trading down a further 3.62% to R18,62/share. The company is now only worth R11.3bn.

News that the Association of Mineworkers & Construction Union (AMCU) has declared a deadlock in gold industry wage talks, and the sluggish nature of the dollar gold price, hit Harmony Gold and Sibanye Gold – companies with the most exposure to South Africa of the Johannesburg-listed gold producers.

The Chamber of Mines said AMCU would refer the dispute to the Commission for Conciliation, Mediation and Arbitration and takes the wage negotiation process a step closer to a strike if no mediation can be found.

“Wage negotiations will continue at a central level, while the dispute resolution process will continue with AMCU,” said the chamber’s lead negotiator Elize Strydom. Talks would resume with the other three unions on July 15.

“Wage negotiations are a process – one where the parties have to find each other to reach an agreement and there are many constructive mechanisms provided for in our legislation,” said Strydom in a statement.

“As the producers, we would like to see an agreement that would ensure the long-term sustainability of our industry and the jobs it provides,’ she said.

Ironically, South Africa’s Resource top 10 edged into positive territory owing to a recovery in the stocks of heavyweights Glencore, BHP Billiton and Anglo American which were sold down previously in the week.