Betrayal by officialdom ...
mips1.net
Govt report hammers SA mining stocks
By: Stewart Bailey
Posted: 2002/07/26 Fri 17:00 | © Miningweb 1997-2002
MININGWEB: we have with us Jack Jones. He is the executive director of the International Mining Research team at CIBC World Markets in London. Jack, how much of the carnage among those South African shares today could you relate to this mining report?
JACK JONES: Stewart, I think the best guide to the impact of today's events is, just looking at the relative performance of the share prices in London, of the big diversified groups, Rio Tinto and BHP, which have a relatively low South African exposure, they've fallen around 1%. Anglo American, which has quite a high South African exposure, has fallen by 11%, and I think that 10% differential is really all due to worries about this minerals legislation. Markets hate uncertainty, and this adds to all the other pressures that have been forcing share prices down recently.
MININGWEB: Jack, could you just explain for our listeners who perhaps aren't quite as familiar with mining companies as you are, why it's so important for a company's valuations to have security of its reserve base.
JACK JONES: If you don't have any minerals resources, the ore in the ground, you can't mine – it's the life blood of the company. Therefore if there is uncertainty over the ownership of those resources, it has a consequentially big impact on the business. You could find that the business is actually worth nothing.
MININGWEB: So what are investors going to be looking for next week and the weeks to come, to satisfy themselves that perhaps they could step back into some of these South African stocks?
JACK JONES: I think it's a reduction in the uncertainty here. Investors got a huge surprise today, as indeed did the companies as well. They had been told by Government, and Government had given the impression to international investors, that security of tenure for existing operations was guaranteed. That clearly is not the case in this legislation. I think it's extremely worrying that Government has taken such an extreme position in what might be an opening negotiation – but, nevertheless, it's going to do an awful lot to harm international confidence.
MININGWEB: And from where you stand, just following on from that – what kind of impression does this create for the future of mining in South Africa?
JACK JONES: I think it's all about high international competitiveness. If you have big uncertainty in South Africa, companies are really going to push it further and further down the list of places they want to do business. The companies that are already established there, I think even they will be very reluctant to go ahead with big investment projects, if they are not sure of the ground rules they are going to be operating in, in future.
MININGWEB: So if there is this uncertainty over the ground rules, obviously the Government is looking at opening the market up to some new entrants. How many foreign majors, or mid-tier companies for that matter, are going to step in, spend money on big platinum projects that do fall off the table or big diamond projects that fall off the table?
JACK JONES: Firstly, Stewart, I'm not sure if international majors quality under the black empowerment criteria, but international majors, I think, are also incredibly sensitive to security of tenure. As I said, the South African Government has been making it very clear up until now that tenure would be respected. The new draft legislation says not. What other nasty surprises might be in the pipeline? I think that's hardly conducive for big international groups, say a Rio Tinto or a Barrick, that have the majority of their operations in low-risk areas, for them to suddenly turnaround and come into what is clearly becoming a high-risk area.
MININGWEB: Jack, can we expect to see these mining shares punished again next week? Or has most of the damage been done?
JACK JONES: I think that is quite probable, Stewart. First of all, it doesn't help. The gold price has collapsed. It recently hit $301, it's now sitting at $302. That's going to be a lot of pressure for shares on Monday, even if nothing else happens. It's very difficult to analyse legislation risk. However, I think given the extreme nature of the draft that we've seen, my initial conversations with international investors show that they are very, very worried about what's going on here and I think we will see more selling pressure.
MININGWEB: That was Jack Jones, executive director of Mining Research at CIBC World Markets in London. Byron, after all the good news in that sector over the last while, the last few months indeed, that's pretty gloomy news?
BYRON KENNEDY: And a pity to see it all being unwound. But the sell-off today, do you think much of that was foreign-based, or was it mostly local investors getting out of the markets. Any idea?
MININGWEB: Just based on the discussions that I've had during the course of the day, I think there was a mix of both, but certainly once that news hit the London markets, you saw that selling accelerate and I think that picked up another notch when the New York market woke up. So I think we still have to see how that gets digested through the course of today, and then again on Monday morning.
BYRON KENNEDY: A pretty bleak day, and prospects on Monday, with the gold price down at around the $302 level?
MININGWEB: It's a shocking drop. I think what we need to look at is just how that US market has opened today – it has opened stronger, we are looking at the dollar not looking quite as shaky as it has been in the past. Those all spell bad news for gold. So, with that going down, we are seeing that gold index just get absolutely clubbed today.
MONEYWEB: That was Stewart Bailey from theMIningweb.com and that all about the leaked draft document by the Department of Minerals and Energy. It had a massive impact on the resources shares today, that index down in the order of 6%, with the gold index losing 13% |
