Consensus among economists is that South Africa is due for more of the same in 2020, unless the government can bring about urgent reform.
While the narrative in SA’s mining sector takes its cue from the broad economic and political strokes, there are some specific investment themes worth acknowledging.
Admittedly not quite the Delphic oracle, finweek has attempted to capture a few likely stories, themes and even outcomes worth watching in the mining sector this year.
Up to three mining companies, with a combined market capitalisation of R320bn, could either leave the JSE or make the bourse their secondary investment market.
AngloGold Ashanti has said it would seek an offshore listing, provided it sold Mponeng and Mine Waste Solutions – the SA operations it has put on the block.
Sibanye-Stillwater has identified an offshore listing as part of its long-term strategy, while Gold Fields’ continued primary presence in Johannesburg would attract questions were it to finally cut its losses and sell its remaining SA mine, South Deep.
The determinant in the latter two companies may well be the strength of the gold price. Gold Fields has said the future ownership of South Deep would be considered once it had established a track record of profits.
For Sibanye-Stillwater, removing debt is its primary focus, which turns on generating wad-loads of free cash flow, and brings us to our second theme.
Precious metal bonanza
“Gold’s long-term prospect is up, up and up,” said Mark Mobius of Mobius Capital Partners in an interview with Bloomberg News in September.
The year-long bull run in gold that supported these claims was given further support during the holiday period.
This followed the escalation of political tension in the Middle East on 2 January, after the US assassination of Qasem Soleimani, head of Iran’s elite Islamic Revolutionary Guard Corps’ Quds Force.
“The combination of central bank stimulus and rising food and energy prices will only add to our view that inflation or the risk of rising inflation will become a theme in 2020,” said Ole Hansen, head of commodity strategy at Saxo Bank.
“Gold’s behaviour during the past few months supports this view.”
Continued rand weakness is also likely, which will assist those companies earning dollar revenue and expending their costs in rand – such as SA miners – although there may be some inflation catch-up.
Set against a promising outlook for companies exposed to precious metals is the prospect of proposed amendments to the cornerstone mining legislation that is the Minerals and Petroleum Resources Development Act (MPRDA).
The department of minerals and energy has given the mining sector until around mid-February to lodge comments on the proposed amendments, which Peter Leon, an attorney at Herbert Smith Freehills, describes as “... either unduly burdensome on the holder of or applicant for a prospecting or mining right, or [in] conflict with the existing provisions of the MPRDA”.
Climate change ......
or more specifically, coal.
According to a report by JP Morgan, the extractive industries are “right in the crosshairs” of the climate change movement, which was well and truly absorbed into the popular consciousness in 2018 and 2019.
The mining sector represented 12% of global greenhouse gas emissions, it said in a report last year. Including total coal burn, the sector comprises 40% of global emissions – one of the figures that is giving Anglo American heartburn in respect of what it intends to do with its SA coal export mines.
All eyes then on the group’s sustainability report in April in which it will detail its plans for SA coal.