South Africa is notorious for its achilles tendon, labour unrest. The most heavily impacted victim of strike action at the moment is the platinum sector, all relevant stakeholders have been severely affected by the halt of production, billions of rands have been lost in revenue and wages. And the market has responded accordingly, with share prices losing value as the deadlock continues. Pierre Marais of Citadel, has come out with the contrarian position that despite the risk in the sector there is value in mining company stocks – the strike must come to an end eventually, and now is a good time to find a bargain. Similar sentiments have been uttered around share prices exhibiting a once-in-a-generation opportunity, perhaps it is worth taking heed of the value investors advising us to look past the impact of the unrest today, in order to see the returns that are expected to be garnered in the long term. – LFÂ
GUGULETHU MFUPHI: There is still value to be found in diversified mining companies. Joining us now for a look at South Africa’s post-election mining sector, is Pierre Marais, Portfolio Manager at Citadel. Pierre, I must tell you, when Alec and I read through the announcement that came through today, we raised our eyebrows, shook our heads, and were a little bit confused. Where exactly are you finding an opportunity in the local mining sphere?
PIERRE MARAIS:  Good afternoon, Gugu. Thank you very much for the opportunity to talk to you. I guess we are a little bit contrary in a way. Often, we need to be a bit contrary in the sector, as you know, and I’m sure we’ll talk about some of that. Our view is that when there is bad news, you often find bargains so one has to be careful when you do your homework and find some bargains.
ALEC HOGG:  Well, I was mentioning earlier to Bernie Krone that I spent a bit of yesterday afternoon listening to Piet Viljoen from RECM, and they are like you. They love the mining sector once in a generation. I’ll tell you, the thing that confused me most was when you said the MPRDA is good news. Now, maybe it is for mining but my goodness, for the petroleum sector it looks as if it’s making our whole fracking opportunity stillborn. Where’s the good news in that, Pierre?
PIERRE MARAIS:  You make a very good point, Alec. I’m not trying to be a Pollyanna here in saying everything is great. Sure, you’re right that in the petroleum side, we might have a few challenges still to deal with, but I think the good news Alec, if you don’t read carefully what has been going on in terms of that mouthful, which is called the Minerals and Petroleum Resources Development Act Amendment Bill (if you’ll excuse all of that)… The good news there is that despite what you read in the papers, government and business have been working very hard for a long time in fact, on this version of the Bill (since 2012) to try to find common ground, and to make the industry a better place for everybody, including investors. That would be partly, where my slightly more optimistic view comes from.
ALEC HOGG:  All right, so you don’t think the petroleum side is necessarily…you’re not going against the flow there, but you would be listening to somebody like Roger Baxter who says ‘on mining, we’re quite happy that we’re going to make progress’.
PIERRE MARAIS:  Alec, one of the things one has to say is that the Chamber of Mines endorsed this latest version of the Act, so these are guys as you know, that carry the interests of not just Labour but everybody, including the owners of these businesses, at heart. I certainly think there is room for optimism there because as we’ve also mentioned, a new broom (in terms of the new Minister) is likely to be good news rather than bad news.
GUGULETHU MFUPHI: What about the appointment of the new Minerals and Resources Minister – Minister Ramathlodi?
PIERRE MARAIS:  Yes, that’s what I was talking about, Gugu. You may have noticed in the last few days: he’s not let any grass grow under his feet. He has promised us/laid it on the line that he’s going to break the strike. Again, if you look at the news later, he called in a whole bunch of role players now, including the Department of Labour and the Treasury. He’s getting everybody involved to try to break the impasse. Surely, that must be good news.
ALEC HOGG:  The previous Minister did her best. What might make this different? What makes you optimistic? Let’s put it that way.
PIERRE MARAIS:  Yes, okay. Alec, the previous Minister perhaps – if I may say so – may have been a bit too timid. I think Advocate Ramathlodi is going to be less timid. He may have to bang a few heads together to get to some agreement, but I think there’s much more urgency now to get this thing resolved. We all know how much it’s costing the country, costing Labour, and costing the businesses involved.
ALEC HOGG:  Fair enough, but AMCU doesn’t exactly listen to the ANC. If it was NUM, I might say you’re on the right track, but AMCU are going to say ‘up yours. We like Julius. We don’t actually like you, Mr Ramathlodi, so why are you trying to force us into something?’
PIERRE MARAIS:  As I said, I think if it’s an even-handed approach, even AMCU can’t hold out forever. This is inarguable. At some point, if they have their members’ interest at heart, they really would like to see a resolution, and would like to see their members get back to work
GUGULETHU MFUPHI:Â And the trust deficit between the unions, business, and government?
PIERRE MARAIS:  Obviously, I think that is the issue. What I’m trying to point out is that we find that it’s often darkest before the dawn. I think that there is a real urgency/a real need now for resolution because everybody’s really beginning to feel the pain of what is going on here, including AMCU, the government, and the platinum miners involved. Again, I think there is an urgency now, for this to be resolved sooner rather than later, and that is where our optimism in the dark comes from.
