South African markets are calm following the passing of Nelson Mandela, who was instrumental in the country's peaceful transition away from apartheid.
One of Mandela's biggest achievements was enacting policies that paved the way for GDP to grow for 15 years, the longest period of expansion in South Africa's history. These policies included embracing the free market, cutting costs and attracting foreign investment.
The question is now that Mandela has passed on, whether South Africa will feel more free to abandon the policies and conciliation that he espoused. For example, the ANC's youth wing wants to nationalize banks and mines, policies that Mandela ditched in 1994.
There are also fears that Mandela's death could leave South Africa open to renewed racial and social tensions, such as those seen in the mine strikes over the past year or so.
The economy is already not in a good way: unemployment is 24.7% and there is a large inequality in earnings between blacks and whites.
The FTSE/JSE Top 40 is +0.3%, the South African 10-year bond yield is -2.5 bps at 8.16%, and the USD-ZAR is +0.2% at 10.4732 rand.
Output from the world's gold mines (GDX) is set to hit record highs this year, according to Reuters, disappointing bulls who are impatiently waiting for production cuts following this year's 24% plunge in prices.
Some miners such as Kinross Gold (KGC) have felt the price squeeze and have suspended marginal projects, but others are increasing output to maintain revenue and profit levels; the world's top three gold miners - Barrick Gold (ABX), Newmont Mining (NEM) and AngloGold (AU) - all reported higher production in the most recent quarter.
Analysts say long delays and time scales in mining mean it will take time - perhaps until 2015 - for the drop in prices to translate into lower mine output, but for now, miners are cranking up volumes to boost revenue and spread out their hefty fixed costs over a bigger base.
Randgold Resources (GOLD) +5.3% premarket after posting Q3 net profit of $81.3M, down from $103.3M in the year-ago quarter, and basic EPS of $0.88, down from $1.12 a year ago but above analysts' consensus estimate of $0.64.
GOLD produced 233,677 oz. in Q3, +14% Y/Y, while gold sales rose on the year to 348,688 oz., +9.5%; says it is on track to produce 550K oz. in Q4.
Forecasts the Kibali mine, a joint-venture with AngloGold Ashanti (AU) which began commercial production in September, will produce more than 30K oz. of gold this year and 550K oz. next year.
AngloGold's (AU) profit attributable to shareholders collapsed to $1M from $168M a year earlier, although the figure marked an improvement from Q2, when a writedown of $2.4B - a result of falling gold prices - caused the miner to make a loss.
Adjusted profit more than doubled to $576M.
Production +1.3% to 1.043M troy ounces; gold price received -19% to $1,327/oz.
AngloGold is exiting a number of exploration projects in 13 "non-core" countries as part of a restructuring. The company is "trying to close a sale" of its small Navachab operation in Namibia and it's cutting 430 positions at its troubled Obuasi mine in Ghana. (PR)
HSBC upgraded its stock ratings on various gold mining companies, noting that recent weak stock performance has "opened up value again," demand for gold remains strong, lower prices are resulting in reduced supply.
The firm expects gold prices to rebound again, bringing better value in some gold miners, particularly Barrick Gold (ABX +1.9%), Goldcorp (GG +2.1%) and IAMGOLD (IAG +3%), upgraded to Overweight from Neutral (I, II, III); it also raises Agnico-Eagle Mines (AEM +0.4%), Yamana Gold (AUY +2%) and AngloGold (AU +0.3%) to Neutral from Underweight (I, II, III).
HSBC, however, cuts Gold Fields (GFI +0.2%) to Underweight from Neutral, in part due to higher risk related to an SEC investigation.
The ethics council recommended to place the activities of Shell and Eni in the Niger Delta under observation, but the Ministry of Finance declined.
The ministry also asked Norges Bank to discuss potential environmental damage with AngloGold Ashanti (AU); the ethics council wanted to exclude AU from investment, but Norges Bank's assessment was that active ownership strategies could contribute positively.
Fitch thinks gold at $1,000/oz. would put the ratings of some gold miners under significant pressure if no serious cost cutting and cash conservation measures are taken.
Recall that Barrick Gold (ABX -3.2%) cut its last dividend to $0.05 from $0.20, Kinross Gold (KGC -2.5%) suspended its dividend over the summer, and Gold Fields (GFI -3.2%) said in August it would not declare an interim dividend.
Sell-rated AngloGold (AU +5.7%) is "badly positioned" given a weak balance sheet, high capex commitments and the failure to dispose of high-cost, non-core assets, Citi says.
On Harmony Gold (HMY +3.2%), another Sell, the firm finds the touted Wafi/Golpu project unfeasible; the firm had estimated the project to have a negative NPV of $595M in a year-old analysis when its average gold price assumptions were ~30% above current spot prices.
The analysts have the most positive outlook on Gold Fields (GFI +1.5%), which is rated only at Neutral.
Randgold Resources (GOLD -0.8%) says its giant Kibali gold project in the Congo has successfully started production ahead of its original year-end target and is still in line with capital forecasts.
With the earlier start-up, Kibali is expected to exceed its production target of 30K oz. for the rest of this year, and is on track to meet next year's forecast of 550K oz.
The project is being developed in two phases; the plant's oxide circuit has been commissioned early and is treating oxide ore from the stockpile of more than 1M metric tons already produced by the open pit mine.
Kibali is a joint venture between GOLD (45%), AngloGold Ashanti (AU, 45%) and a Congolese partner.
Some striking South African gold miners returned to work last night after accepting an 8% pay increase from companies including AngloGold (AU +2.6%) and Sibanye Gold (SBGL +3.6%).
The offer has been accepted by most members of the National Union of Mineworkers, which represents two-thirds of the country's gold miners.
However, 10 of Harmony Gold’s (HMY -0.6%) 11 mines continue to be affected by the strike, and workers at Gold Fields' (GFI +1.3%) South Deep mine also aren’t yet back at work, but they may report for duty later today.
AU’s six mines report normal shifts, and two of SBGL’s three sites are operating with the remaining mine expected to resume tonight.
The companies seem unwilling to meet the labor union’s terms; “The gold mines are taking action to put their operations into positive cash flow at this gold price," a Johannesburg-based analyst at SBG Securities says. "Hunkering down on wages is part of that strategic plan. They can’t afford it."