[miningmx.com] – IT’S fair to say the South African mining sector didn’t fail the headline writers last year and on the evidence of events in the first two weeks of this year, the sector will be as active as ever.
Labour ructions, regulatory change, societal discontents combined to force credit downgrades throughout the mining and banking sectors. All in all, 2012 was a typically rumbustious year for the diggers.
So what’s on the agenda for 2013?
The over-arching expectation is of volatility. For those with hearts of lions that means investment opportunity. Here’s Miningmx’s view of what mining stock devotees could expect to see this year.
LABOUR STRIFE
Holiday and post-festive season ructions at one or two mining operations – Coal of Africa’s Mooiplaats and Harmony Gold’s Kusasalethu shaft – underscore the likelihood that the labour and union troubles that reached their nadir at Lonmin’s Marikana mine will continue to be a feature in 2013.
The National Union of Mineworkers will be trying to win back members at Impala Platinum’s mines in terms of legislation that entitles it to do so as its majority has been unseated by the Associated Mineworkers & Construction Union (Amcu). Amcu has also made in-roads to the gold mines.
Added to this is the fact that any further strike or social discontent on the mines will be distilled at the traditionally tension-heightening annual wage negotiations which kick off in earnest from June. It will be winter, Eskom tariffs will be biting, and the miners will be in no mood to hand out olive branches.
TAX TALK
The ANC’s Manguaung elective conference supported the expectation that an overhaul of the tax regime in the mining sector will continue to be debated.
Coal as a strategic asset, amendments to the Minerals and Petroleum Resources Development act controlling steel and iron ore pricing, and aspects of the ANC-commissioned report, the State Intervention in Mining (Sims), will contribute to the “South Africa discount’ many investors apply to South African mining stocks.
PLATINUM RECOVERY
It’s not all bad news. Already, there are signs that sentiment has changed slightly regarding the future investibility of the South African platinum sector with Sable Platinum, IvanPlats and Platinum Group Metals raising dollars for future mining in the famed Bushveld Complex.
The platinum surplus, estimated at one point last year (2011) to move to some 500,000 ounces, is expected to turn into a remarkable 400,000 ounce deficit in 2013 with South African production some 300,000 oz less. Anglo American Platinum will also act on promises to optimise its mines which many interpret as lowering production. Although not specified this could create deconsolidation of output. All in all, we’re of the view that the platinum sector is a pocket of promise for investors.
ASIAN INVESTMENT
As the major mining houses cut back spending in favour of yield, Asian investors have recognised the opportunity. The last quarter of 2012 saw a flood of Chinese investment in Africa’s mining sector. The West Africa iron ore sector alone is estimated to have attracted R25bn in investment, much of it Chinese, according to a recent report by JP Morgan.
Further south, the SADC community is expected to receive continued investment interest from Chinese and Indian companies, especially Botswana and Mozambique where there’s interest in the coal and power generation sectors. In fact, exposure to SADC energy is not a bad investment move.
There’s a similar Asian interest in South Africa as well. It’s significant that China’s government joined hands with the Industrial Development Corporation (IDC) to buy control of Palabora Mining in December, and that the trade and industry department has flagged the possibility of Asian investment in its planned steel facility with the IDC.
The Chinese in particular, however, are not buyers of last resort. Already this year, the failure of Barrick Gold to sell its stake in African Barrick Gold to National China Gold, and wobbles in the bid for Discovery Metals by Cathay Fortune and the China-Africa Development Fund suggest deals will be hard fought.
MARKET UPS & DOWNS
Expect the international mining market to remain volatile. Aluminium and thermal and coking coal prices will remain under pressure. Evidenced by the increased interest in gold-backed exchange traded products, the gold price is expected to remain strong amid US fiscal worries and Eurozone sluggishness.
Not so rosy for gold stocks: Paulson & Co, the New York hedge fund, has been a seller of both Gold Fields and AngloGold Ashanti after being their largest single shareholder for years. It’s tough for our local gold producers.
The creation of Sibanye Gold, the unbundled company from Gold Fields, will provide interesting insight into whether the old Witwatersrand Basin has retained any of its investment fascination for gold bugs.
