International Investors Bailing Out of South Africa’s Mining Sector

on Sep 17, 2012

In the wake of the violent industrial action at Lonmin’s (LON:LMI)Marikana platinum mine over the past five weeks – with 34 miners shot dead by South African police on 16 August – there are signs that managers of major international funds are downsizing their stakes in the country’s minerals industry. Further, that some investors in the sector are leaving indefinitely.

The Lonmin strike, now into a sixth week, has resulted in a total of 44 deaths to date, including police officers and at least one worker seeking to do his job, and has brought sharply into focus the often tense state of industrial relations – mirrored in political tensions also – in the Rainbow Republic.
The ANC-controlled government, vowing to crack down on ‘unprotected’ (ie, illegal) strikes, has sanctioned the use of armed forces alongside civil police and Bloomberg reports that over the weekend some 150 regular soldiers assisted in suppressing violence at the Marikana mine.

And the Financial Times cites one informant – described as a ‘global institution’ – as saying that it has offloaded almost all of its stakes in companies operating in South Africa’s minerals sector, for the foreseeable future. Signs of similar moves have been noted by investment brokers and analysts, with an apparent trend of offshore funds being pulled and domestic investment moving in to take their place.

!m[](/uploads/story/384/thumbs/pic1_inline.png)Observed Rajat Kohli, global head of mining and metals at Standard Bank and a principal-adviser at AWR Lloyd in London, “A sell-down by international institutions has certainly taken place and in some instances we’ve seen a migration towards South African investors.”
And on the back of the Lonmin action, other gold and platinum miners have been targeted with strikes – typically with little or no adherence to statutory pre-notification requirements – in support of demands for higher wages. In the result, sector operators are struggling on the bourses. Examples are AngloGold Ashanti (NYSE:AU) and Gold Fields (NYSE:GFI), which since mid-August – when the ‘Marikana Massacre’ was receiving global media coverage – have fallen by seven to 10 percent off the market benchmark. Gold Fields last week had some 15,000 of its mineworkers down tools on what the company claims to be an illegal strike.

Anglo American (LON:AAL) has also under-performed the market, albeit to a lesser extent, and last week, faced with the intimidation of its willing workers, closed its entire Rustenburg platinum mine.
The Financial Times quoted one unnamed fund manager as revealing that his fund had shed an equity position in South African platinum some time back and has since maintained an exposure to the sector only via trades in the physical product. “We have always felt that people were underestimating the issues down there and possibly still are,” said the source. “You would have to have an incredibly compelling reason to be long mining in South Africa.”

The Standard Bank’s Kohli believes that the ruling African National Congress party’s conference this coming December could prove to be a turning point – to this point at least, the party’s official position is that nationalisation of the mining industry is not on the table. But Julius Malema, the highly voluble – and visible – former leader of the ANC’s Youth Leage and who plainly has high political ambitions, has been regularly calling on more mine-workers to stage industrial action.