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Peter Major might have had a holiday, but he’s lost little of his straight shooting approach towards problems bedevilling South Africa’s mining industry. As he pointed out in this CNBC Africa interview today, the JSE’s Resources Index (see graph below the transcript) trades as the same level it did in 2009. Major says this is because the politicians and trade unions have taken control of the mines – a movie that seems to be having a re-run in Zambia. Is there opportunity in the gloom? Perhaps, says Major. Particularly in platinum. – AH
ALEC HOGG: Peter, I am sure you hope it is a better year for mining in 2015. Having a look at the Mining Index generally – down about 20% last year. Some of the gold shares did a bit better, but let’s start off with that gold outlook. Lots of sales of the gold ETF’s going towards the end of the year.
Has it however, gotten to the stage where the gold bugs might have a better 2015 than 2014?
PETER MAJOR: I doubt it, Alec. I think the odds are less than 50/50. When I look at the mining sector, I think the odds are better because by my calculation, the mining sector has averaged a zero percent return for the last seven years. I think that’s some kind of record.
To have a major component ... to have a sector that large, that is giving you a zero percent return on average, over the last seven years.
Watch:
We know the INDI’s done great, the FINI’s done great, the ALSI’s done okay and the International ETF, especially the States, has done fabulous. You’d think that just on a statistic basis that the mining sector is due for some kind of bounce, some kind of movement up. If you look at the BHPBilliton share price – the world’s largest mining company – and they’re still under the 40% profit margin, and that is still low. However, gold…I think it’s less than 50/50 that gold is going to go up much above $1200. It does seem to have built the floor here.
I think the platinum prospects are much, much better, Alec.
The platinum grades are much lower than gold’s grades. It’s much more complex and expensive to refine platinum and there’s not really a stockpile, so I’m fairly bullish. I would be buying platinum ETFs here, but not gold.
ALEC HOGG: It’s an interesting point you make about the mining sector, generally. We have news from a part of the continent where it appears as though the politicians are driving the economy. In Zambia, where the royalty there has been jacked up from 6% to 20%. Already, Peter Munk’s company Barrick has said they’re going to be closing one of their operations – killing 12 000 jobs. What’s your take on the way that things are developing there?
PETER MAJOR: Alec, you have brought up I think, the most important fact about mining in Africa now, especially in South Africa. The politicians and the unions have taken over the mines now, more within the last 10 years. And so when you buy Amplats you’re not really buying Anglo American Platinum. You’re definitely not buying (CEO) Chris Griffiths. You’re buying Gwede Mantashe, Vavi, Irvin Jim, or Joseph Mathunjwa. And that’s why you had horrible returns in the platinum sector for the last 10 years and you’re going to continue to have bad returns.
Now, the metal is different. In Zambia, it’s reflecting now what we’ve done in South Africa: the politicians have taken over the mining companies, so the General Managers and the MDs just show up and collect their paychecks, and they do lots of negotiations on behalf of the politicians and the unions. Once a mining company no longer controls its assets, you don’t want to be buying those assets. You’ll buy the metal that it produces but you don’t want to put your money in the company.
ALEC HOGG: But Zambia…one would have thought, has had the experience of the 1960s where they tried to engineer the mining sector with disastrous consequences. Does nobody read history?
PETER MAJOR: Well, what cancels all that out, is politicians. Politicians have one priority in life and that is to stay in power. We have lots of great examples in the 55 African countries and we have great examples in the rest of the world. It’s not just an African phenomenon.
As long as you have a politician, you have someone who wants to stay in power at any cost. That means everything else is secondary/tertiary. They don’t care if politicians have nationalised. They don’t care if politicians have done this. A politician is basically, a populist. He’s basically, an Eva Peron. He’ll do whatever he thinks makes the masses happy enough to get him reelected, to the detriment of the country and all its people. That’s what it looks like Zambia is doing to their mining sector.
ALEC HOGG: People need statesmen, not politicians. It’s interesting that the candidate for the official Opposition in Zambia, this morning made an announcement that if he were to be elected, the first thing he would do would be review that mining royalty, which is killing jobs in that country.
That was Peter Major. He’s from Cadiz Corporate Solutions.
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