THE undue influence of politics on South African mining was highlighted by fund managers and analysts at the Joburg Indaba today, but Allan Gray portfolio manager, Sandy McGregor, stressed the most important aspect of a decision to invest in mining was the orebody.
Taking part in panel discussions, the fund managers and analysts also emphasised investors had a choice between mining and non-mining shares. Non-mining shares were being more favourably viewed because of the meltdown in mining shares over the past three years.
According to Fiona Perrott-Humphrey, senior adviser to the mining team at Rothschild, London: “The London view is that optimal capital allocation in mining is an oxymoron. Their view is that miners should get real with themselves and the first sector to get real has been gold. Investors now want to see the rest of the mining industry perform.”
Stephen Arthur, head of equity; asset management at ABSA Asset Management commented: “My decision every day is: do I buy Shoprite or do I buy a South African mining share? I learnt a new buzzword the other day – optics – and the optics on Shoprite are far better than the optics on a South African mining company.
“You have all these legislation and political issues that take up management time with very little management time being spent on actually running the mining operations. One mine manager told me he spent up to 70% of his time on community issues.
“That’s not good enough for me and I think the reason the majors have moved out of South Africa is because there’s too much hassle – too much noise. We need to eliminate the noise and get back to mining.
“I know PicknPay [South African retail business] will be open 365 days a year. I cannot say with certainty how many days a mine will be able to operate each year because of issues like Section 54 safety shutdowns.”
Perrot-Humphrey added: “There is a perception in London that that capital allocation in the South African mining industry is being affected by political decisions. They would like to see pure supply and demand issues driving capital allocation.”
But Allan Gray portfolio manager Sandy McGregor stressed that “what matters is the ore deposit”.
“Mining has been going on in South Africa for 130 years and the number of great deposits remaining is relatively few. There are some really great deposits in the Congo.
“There’s a small problem with the country but, in the long term, the mining business is likely to be in the Congo because that’s where the deposits are. A great deposit can make a lot of money for shareholders.”
Arthur pointed out the “biggest slug” of the financial benefits from mining actually went to government with shareholders only getting 9% of the benefits.
“What I cannot believe is that government is not bending over backwards to promote the mining industry and get things working properly,” he said.
Arthur’s comments were built on by Cadiz Corporate Solutions mining consultant Peter Major who said: “It’s the environment here which is so anti-mining. You keep thinking government cannot miss all the benefits of mining but they have; month after month, and year after year.
“We have a government that is totally oblivious. Every one of the 2,000 pieces of legislation makes mining harder and harder. If that’s not fixed nobody has any reason to invest here,” he said.
