Share

Are SA's mining stocks likely to implode?

Commodity prices kicked on in the early days of 2018 – the Bloomberg Commodities Spot Index jumped to its highest since December 2014 on 5 January – raising the valid question as to whether mining stocks were due for another implosion as they had in 2011 after a prolonged rally.

But analysts believe there are significant differences between 2011 and today, and are recommending their clients to stay in certain mining stocks, with BHP and Glencore the most commonly cited.

“We continue to think that the combination of modest growth, improving returns and capital efficiency should lead to a re-rating,” said Macquarie in a report on diversified mining stocks. 

Its most important observations were that mining firms were not spending hell for leather as they had in the lead-up to 2011, and that from a demand perspective, the growth wasn’t all related to the performance of China.

Back in 2011, the European debt crisis had derailed a lot of mature economies; now those economies are back on track.

Supply is also constrained, said Goldman Sachs in a report. Peak capital expenditure was in 2012/13 and projects related to that capex have mostly been delivered, it said.

“We believe capex will rise in 2018 mostly as a result of catch-up, but the volumes from this capex will arrive in 2021/22, so this isn’t a concern to supply-demand balances, in our view,” the bank said.

According to Macquarie, there was also less chance of resource rent grab from host countries because mining companies were much more transparent on their tax payments – although, tell that to the mining firms operating in Tanzania, where law changes suggest a tax grab is very much the dish of the day.

“Strong growth sentiment together with a renewed push towards the US infrastructure bill sets up a stage for a strong 2018,” said Goldman Sachs. The bank’s economists were bullish on global growth, forecasting real GDP growth of 4.1% this year, it said. 

“Also, news flow from China suggests policymakers are likely to keep the growth target at around 6.5% – in line with our economists’ view – which should assuage any immediate investor concerns that growth would fall off a cliff amid a push to tackle debt,” it said.

From a local perspective, the picture is always slightly muddied by the performance of the rand, which is liquid and volatile.

Currently, the perception of fundamental political change in the country, which would result in a new pro-investment administration, has seen the rand strengthen against the dollar.

The JSE’s gold counters, for example, are receiving roughly R40 000 less per kilogram of gold produced than a month ago because of the rally.

This article originally appeared in the 18 January edition of finweek. Buy and download the magazine here.

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.89
+0.2%
Rand - Pound
23.82
+0.4%
Rand - Euro
20.37
+0.3%
Rand - Aus dollar
12.30
+0.3%
Rand - Yen
0.12
+0.2%
Platinum
908.05
0.0%
Palladium
1,014.94
0.0%
Gold
2,232.75
-0.0%
Silver
24.95
-0.1%
Brent Crude
87.00
+1.8%
Top 40
68,346
0.0%
All Share
74,536
0.0%
Resource 10
57,251
0.0%
Industrial 25
103,936
0.0%
Financial 15
16,502
0.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders