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Motlanthe's mining pact and the rand

Jun 14 2013 20:02 Peter Attard Montalto

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Nomura emerging markets expert Peter Attard Montalto analyses Friday's meeting between the government and mining industry heavyweights:

Deputy President Kgalema Motlanthe's day of talks with the mines and labour have resulted in a draft pact, but it's unclear what it will do to help stability (though full details are obviously still to be decided).

There is no commitment to avoid strike action and no more fundamental reassessment of the sector to make structural changes (like to migrant labour system), nor anything on majoritarian recognition - simply a call for engagement and non-violence.

Overall, it's clearly not a bad thing to have this and the process has stalled the Association of Mineworkers and Construction Union's (Amcu's) Lonmin [JSE:LON] recognition strike for now at least. But we had similar agreements after Marikana and again in February to minimal effect, and there is nothing here really to alter the situation in my view.

Indeed, news on Friday afternoon of a strike at Anglo Platinum [JSE:AMS] confirms that such pacts (so beloved by the South African government) are really worth very little and we need to see both real action and leadership through difficult choices and compromises on every side.

Overall, we think the government is still in what can be said to be largely a stalling exercise to hold the situation down until after the election – that will be the time when there is significant restructuring and job losses in our view.

Looking at our previous list of factors to help restore investor confidence, we really are still not making any progress.

President Jacob Zuma’s recent speeches have been better than the now infamous one two weeks back, but they still place the blame for rand volatility abroad and do not recognise the domestic idiosyncrasies that are to the fore in investors’ minds.
 
The rand has consolidated down to lower levels, given very poor liquidity and very short-term and small positioning holdings by trading desks on the street.

I still don’t think there is any meaningful rand positive retracement potential near term and all we can really say is that the rand-dollar will continue to increase in volatility around 10 (with upside bias in the cross).

*Peter Attard Montalto is  a director and emerging markets economist at Nomura. Views expressed are his own.


 

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peter attard montalto  |  mining  |  rand
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