Strong rand no excuse, says analyst

[] — SOUTH Africa’s miners shouldn’t hide behind the stronger rand if their earnings fall below forecasts, a sector analyst said on Friday.

According to Cadiz Corporate Solutions senior portfolio manager Peter Major, the spike in commodity prices has far outweighed any deteriorating effects the strengthening currency might have had.

Mining bosses have recently tempered investor expectations by arguing that the bullish rand has to some extent eroded the gains made by the upswing in commodity prices.

In dollar terms, the price of gold has gone up by 30% during the past 12 months. Platinum similarly increased by 28%. Over the same period, the rand price of gold increased by 20%, from around R250 000 per kg to R300 000/kg.

The rand was trading around R7.40 to the dollar in October 2009 as opposed to current levels of R6.90 or lower, strengthening by about 8%.

“Gold producers should be earning more than a year ago,” said Major. “I think it is just in the nature of people to complain, but anyone who hides behind the rand should have a big spotlight on how they run their show.”

Miners’ earnings should also receive a fillip from stronger production figures, as reported by Stats SA on Thursday. Total mining production has swelled by 10.4% between August and the same month last year. Broken down into some of the different sectors for the same period, gold volumes are up by 3.7%, platinum group metals by 22.7% and chromium ore by 37.5%. Iron ore and copper slipped 2% and 1.8% respectively.

However, Chamber of Mines senior economist Roger Baxter says investors should keep in mind that miners’ rand costs have spiked substantially, largely on the back of Eskom’s 25% power price hike. He said miners also couldn’t use the opportunity to get more out of their capital expenditure, as most of the heavy equipment is already made in South Africa.

“We are, to an extent, defenceless against the strengthening currency,” he said. “The rand has eroded much of the upside we could have gained from pricier commodities.”