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Johannesburg - Most of Tuesday morning's interest on the JSE was focused on the gold sector, where the share price of AngloGold Ashanti [JSE:ANG] shot up in reaction to the news that it sold its Cripple Creek & Victor mine in Colorado in the United States to Newmont Mining, the largest US gold producer.
READ: AngloGold's Colorado mine sold for $820m
AngloGold was at one stage more than 11% higher and by Tuesday midday traded at R117.83, which is still 10.64% higher than the previous day’s close and the biggest gain in more than seven months.
AngloGold pulled some of the other gold shares higher and the Gold index was at midday 6.64% higher at 1 084, after heading strongly towards the 1 000 points level on Monday. The index was as high 1 096 on Tuesday morning.
The rest of the JSE however did not share the excitement and all the other major indices were heading south again by midday, as the selling pressure of the past few days continued.
The market is still influenced by the possible consequences of a hike in US interest rates, which could lead to a reversal of the foreign investments in emerging markets back to the US. Such a possibility is already discounted in rising bond yields and is putting a damper on the stock market.
By Tuesday midday the All-share index was firmly heading towards 51 000 points, almost 8% lower than the high of 55 188 points reached as recently as April 26 this year. At that stage the index traded another 0.58% lower at 51 326 points, while the Top 40-index lost 0.77% to 45 5888 points.
The Industrial index was another 0.74% weaker while the Financial index lost 0.61%. Resources shares did not share in the excitement in the gold sector and were 0.47% weaker.
The gold sector buzz centred on Anglogold’s transaction in the US, as the gold price was only 0.69% higher at $1 181 per fine ounce. The gold price is still hovering at around 11-month lows as the strong dollar, boosted by expectations of higher US interest rates, pushed commodity prices lower.
The stir around AngloGold’s transaction stems from the fact that it ended speculation that it would have to issue shares.
The sale of the Colorado mine for $820m plus 2.5% of future gold production will reduce AngloGold’s net debt to its target level of 1.5 times earnings, chief executive officer Srinivasan Venkatakrishnan told reporters on Tuesday.
“We have achieved this without any dilution to shareholders and importantly, it eliminates the potential equity overhang on the stock,” he said. “We have no plans to issue any equity.”
Reuters reported that AngloGold’s aim to cut its $3.1bn net debt had raised concerns among shareholders that it may be forced to sell shares. Investors last year rejected a plan to raise equity to lower debt.
Despite Tuesday morning’s gains, AngloGold’s share price was still 9.58% lower over the past seven days, and it lost 19.59% over the past 90 days.
Gold Fields [JSE:GFI] rose 4.58% to R40.91 on Tuesday morning, but is still 7.45% lower over the past seven days and 40.63% over the past 90 days.
Harmony [JSE:HAR], which lost 52.51% over the past 90 days of which 8.46% was lost over the past seven days, traded 4.95% higher at R16.62.
The market did not react much to the news that Telkom’s [JSE:TKG] headline earnings increased by 60% in the 12 months until March this year, or the news that the company declared its first dividend in six years. The share price hardy moved and was only 0.14% lower at R65.90.
Telkom, which was one of the high flyers on the market last year, lost 19.87% of its value over the past month.
Business prospects are still challenging, with the demand for fixed-line communication declining.
MMI Holdings [JSE:MMI], one of the two newcomers in the Top 40-index, made a satisfactory debut and gained 0.84% to R29.90. The other debutant, Capitec [JSE:CPI], traded 0.31% lower at R492.42. Capitec has lost 19.58% over the past month after a strong run at the beginning of the year.
