South Africa's rand falls to its lowest level in four years as clashes between mine owners and...


South Africa's rand falls to its lowest level in four years as clashes between mine owners and workers erupt again today. Government "heavy-handedness" with mining companies has created a "major negative" for investors both inside and outside mining, as it reduces companies’ abilities to set their balance sheets and control their own destinies, Greenbriar Partners says. AU -3.3%, GFI -3%, HMY -2.6%.
Comments (5)
  • Herr Hansa
    , contributor
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    Might as well add SBGL to that list, since that is the spin-off of GFI with mines only in South Africa. The importance of mining for the economy of South Africa is far too great for the country to fail in solving this problem. The mining unions understand they have some leverage, but if they play their hand too far then some mines will simply close. No company will continue to operate any mine that is not profitable.
    21 May 2013, 02:34 PM Reply Like
  • JeffreyLangBoyd
    , contributor
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    I don't claim to know what is going to happen but closing the mines is not legal without proper consultations and if they actually do close the mines (or even if they don't) there is going to be violence. For all practical purposes the AMCU is indirectly seizing the mines. The model is Zimbabwe or perhaps the pre-financial crisis U.S. automobile industry.

     

    Seems crazy but that is the way it looks to me. Hope I'm wrong.
    22 May 2013, 12:38 AM Reply Like
  • Herr Hansa
    , contributor
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    There are also laws to make strikes at mines illegal without following proper protocol, yet those were somewhat overlooked in the violence of last year.

     

    http://seekingalpha.co...

     

    Strikes are not unusual, but extreme violence was an unusual occurrance last year. It appeared then that AMCU wanted more power, and they were able to build a following amongst some due to animosity towards NUM, especially the tie-in with the government.

     

    Quite simply, I don't think it is possible to operate any mines at a loss. It could happen, but not for long. There are laws in place for halting mining, so this is not something that could happen quickly.

     

    I think South Africa, and many other African countries, are a long way from following the path of Zimbabwe. This could happen if the mines were turned over to people who knew nothing about running mines, but the potential is so incredibly extreme that I think the risk is extremely rare. The US auto industry was being crushed by pension obligations, so I think that model is very different. Yes, South Africa could collapse and have a total failure of their economy, but levels on credit default swaps suggest that possibility is very remote.

     

    Obviously any sign of risk will be enough to make investors flee until the dust settles. I highly recommend that anyone who worries about the risk in gold miners, completely avoid the sector. There is a value in sleeping well at night, and it is simply not worth worrying about your investments.
    22 May 2013, 03:35 AM Reply Like
  • JeffreyLangBoyd
    , contributor
    Comments (663) | Send Message
     
    I agree that odds of nationalization are low but effective nationalization or seizure of a good portion of the assets as was done in Zimbabwe is conceivably a "solution." If it gets everyone back to work and stops the labor strife I think the mining companies might go for such a solution.

     

    http://econ.st/1a6qFNP

     

    My personal opinion is that indirect nationalization makes the most sense in the platinum industry. Let Amplats buy the other producers out and in effect create a cartel. I find it offensive to say that but the cartel can kick back money to the employees, govt., etc. It is crazy but I think that is where South Africa is at and it might be the best bad solution given that the AMCU won't agree to centralized bargaining.

     

    Agree about sleeping at night. I've got some platinum investments in SA but I'm mainly just hoping for an indication that things will stabilize in which case I might buy more but so far it just isn't even close.
    22 May 2013, 11:04 AM Reply Like
  • Herr Hansa
    , contributor
    Comments (3130) | Send Message
     
    Zimbabwe is a unique situation, in that the government is out of money. The monetary system has collapsed there. Barter and black market trade are the order of the day, as is border crossing for work for those able to do so (legally or illegally).

     

    South Africa recently became part of a currency swap agreement involving China, Brazil, and India. While South Africa does have lingering problems, I don't see them throwing away the progress made so far.

     

    Agreed on waiting to see where all this settles. I don't think we have seen the low in gold miners.
    22 May 2013, 03:27 PM Reply Like
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