The strike is over, but the pain for the mining sector is not – Nedbank expert

The mining sector strike is finally over, and workers and mine bosses are justifiably jubilant that can start working again. However, the end of the strike does not mean that things are going to be great from here on. Restarting work on mine shafts is a slow, difficult, and dangerous process (which is why no one ever wants to shutter a shaft unless they absolutely have to). Trying to get the mines back online, mining companies are facing damage to infrastructure, a host of safety challenges, and the general difficulty of restarting. So it will be a good long while before the platinum sector is back in the saddle, even though the strike has ended. Thus, for those of you looking for value in the sector, some caution may just be advised. – FD 

GUGULETHU MFUPHI:  Well, to help us get a more in-depth view of how the markets are currently trading today, we’re joined at the desk by Nerina Visser, Head of Beta Solutions at Nedbank Capital. Nerina, good to have you with us, as always.

NERINA VISSER: It’s my pleasure.

GUGULETHU MFUPHI:  Let’s pick up on the end of the platinum sector strike. We speak to quite a few market commentators on a day-to-day basis and some of them are finding value in resource stocks, particularly in the big three who did see a pullback in their share price appreciation yesterday. What’s your view on potential buying opportunity in resources?

NERINA VISSER: The key point there is that it’s the end of the strike, but it’s certainly not the end of the pain for the sector, the companies, and the workers, I believe. I think there’s a lot that still needs to happen before we can actually say it’s back to business as usual. Yesterday, there were some photographs that were circulating of copper cables being stolen…that was being stolen in the bottom of the mines during this five-month strike period. Forget about copper theft per se, but let’s just think in terms of ‘what will they need to do to actually restore the infrastructure before operations can actually take on any level that it did prior to the strike’. I think that it’s quite premature at this stage to go piling back into the platinum sector. There was also some interesting news out from Switzerland yesterday, in terms of maybe why the platinum price – specifically, the platinum price – as well as the palladium group metal prices, did not react as favourably.

GUGULETHU MFUPHI:  A warm welcome back to Power Lunch. Well, we must apologise for the break in transmission. Clearly, we are still being plagued by some technical gremlins. Someone has their muti around, Nerina.

NERINA VISSER: I don’t know. I think it was that bit when I started speaking about the copper cable theft etcetera. Clearly, it’s affecting the technical issues here as well.

GUGULETHU MFUPHI:  Exactly. It’s interesting that you brought it that to our attention though, because it means that obviously, from the company’s perspective they’ll be hit on both sides – the increase in payment to the staff members as well as refurbishing the infrastructure.

NERINA VISSER: I think it’s also the time to actually get back to full operations – that’s really where part of the concern comes in. Uppermost in their minds is that they must first ensure that the safety conditions are acceptable before they can even begin sending staff back down. It seems as though what they’re doing at the moment is almost reorganising staff: refresher courses in terms of safety etcetera, but I think it is going be some time, I believe. Last night (I think) Anglo Plats said about two weeks and it might even be longer in some of their operation.

ALEC HOGG: SENS Report said that steady state would be back in the fourth quarter this year, so that gives you an indication.

NERINA VISSER: Exactly. Maybe the other aspect that we were looking at, was if it’s too early to start piling back into the mines and the companies themselves, then what about the metal – the products themselves? Yesterday, in other interesting news: in the vaults in Switzerland, it seems as though it might be as much as 20 percent of the world’s platinum supplies in the vault there. I think it goes some way towards explaining why the prices of the metal itself did not react very positively during this period of lack of production, as we would have expected. In addition, when you look at the comparative performance of the platinum price compared to the palladium price, palladium responded a lot better than the platinum price did. It sounds as though it’s specifically the platinum metal that’s in the vaults. I think it makes it very difficult.

ALEC HOGG: Why would that have any impact?

NERINA VISSER: Well, it’s really just about supply in terms of what comes into the market. Knowing that there is a supply of platinum that can be delivered into the physical market as and when needed, really kept a lid on the price rises in the platinum, specifically.

ALEC HOGG: So the stockpiles were there, if required.

NERINA VISSER: Exactly, and I think that makes it very difficult really, to have a very definitive view in terms of ‘where next’. Just as much as we could have expected that maybe once production comes back on board, that’s going to take away the floor on the prices, this is again not necessarily so. Personally, we feel that it’s bit premature to really go piling back into it. Clearly, there would be some speculators and some very brave traders, who would go either into the metal, or into the companies themselves. However, for the long-term investor, it might be a bit premature.

ALEC HOGG: Well, apparently investors have been in it for the last year. At these levels though… I guess that’s what you’re saying. Is it really offering value?

NERINA VISSER: Exactly.

ALEC HOGG: What about Steinhoff – the big news that came out there? Pretty much every day we get a CEO from a South African company saying they’re investing outside of the country. They’re wanting to diversify away perhaps, from the issues that South Africans are facing. Steinhoff is now taking its primary listing to Frankfurt. It’s quite a big deal. The share price has actually reacted favourably.

NERINA VISSER: Yes. I think this is indicative, not of Steinhoff looking for operations outside the country because of course; they’ve had that for many, many years with more than half of their revenue being earned in Europe, in particular. This is nothing new and I think it’s maybe better alignment of the source of capital for that company and a shareholder base, compared to where its operations are. I would not read too much into it in terms of a view on South Africa, South African operations, or the JSE for that matter. Rather, this is another symptom of a globalising world. We see this all around the world, that companies are really looking for where the most appropriate source of capital and shareholder base is, compared to the operations that they have. I do think it’s very good for Steinhoff in the long-term. It certainly will bring them much closer to their base in Germany and a great move for the South African investors as well.

ALEC HOGG: It’s quite interesting that another one of the best performers in the market today was MediClinic, which also did an offshore deal yesterday. The investors seem to like the fact that they are looking to globalise.

NERINA VISSER: It’s a form of risk mitigation and diversification as well, and I think it’s prudent rather than a particular view on either South Africa or the JSE, as I say.

GUGULETHU MFUPHI:  Is it also interesting to take into account the geographical locations that they’re moving towards?

NERINA VISSER: Yes, I do think so. In Steinhoff’s case, it makes a lot of sense that it is Frankfurt and it is Germany, because that’s really the primary base of their European operations. Of course, a lot of that goes into Eastern Europe, but from a stock exchange listing point of view, Frankfurt really does make the most sense for Steinhoff.

GUGULETHU MFUPHI:  Well, companies like Sasol, who have some operations in the U.S.: should they be concerned by the slow economic growth story there?

NERINA VISSER: Well, I don’t necessarily think so. Are you talking about Sasol in particular, now? If we look at Sasol in terms of listing: of course, they have quite a prominent depository receipt listing in New York, so they certainly have a shareholder base that is also internationalised and their operations are really around the world. One of the interesting things – looking at just the oil price in particular – was obviously, we had the spike in the oil price because of the uncertainty and the risks associated with Iraq. News coming from there is that it seems to be located in the northern area, whereas most of the oil operations are in the southern area, so we do see the oil price trading somewhat softer today. In the case of Sasol, they have such a diversified geographical, as well as product-base. We as South Africans, tend to trade them very much according to just what the Brent Oil price and the Rand/Dollar exchange rate does, but we do need to acknowledge that this is actually a much more comprehensive and global company as well.

ALEC HOGG: Thanks, Nerina. That was Nerina Visser, the Head of Beta Solutions at Nedbank Capital.

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