Global miners eager for signs of welcome in SA, but fear govt interference
The South Africa mining industry has had a really rocky time, what with unreliable commodity prices and ever-more volatile labour relations. But, according to Cadiz Corporate Solutions' Peter Major, despite its many problems, foreign companies are eager to invest in the South African mining and minerals sector. Unfortunately, this eagerness is slow to translate into in-the-ground investment, mostly, says Major, because investors are apprehensive about future developments, particularly on the regulatory front. If government were simply to engage investors more, to promise them some security and stability, the country could capitalise on investor appetite. And, of course, Major points out that organised labour could also be a little more sensible in terms of biting the hand that feeds it. Major's optimism is encouraging, given the lackluster outlook for commodity prices. However, it seems wildly optimistic at best to expect the South African government to change course on capturing mining profits and pandering to organised labour. – FD
ALEC HOGG: Well, the largest mining investment event, investing in Africa mining Indaba, kicks off today. 2013 was a record-breaking year for the indaba with more than 7800 individuals representing 1500 international companies in attendance, in Cape Town. Meanwhile, mining companies, Amplats and Harmony Gold released results today and we had a trading update Sibanye – lots to chat about with our good friend Peter Major. He is with Cadiz Corporate Solutions. Are you on your way to the indaba, Peter?
PETER MAJOR: I am Alec, and I haven't made it yet. It looks like I'm only going to get there at 3:00.
ALEC HOGG: Is there anything in particular you want to watch today? You don't seem too disturbed about the fact that you'll have a late start.
PETER MAJOR: Look, I've gone to it most years but we've had so many people call in advance and make appointments today, and its people that you can't always see, so this is going to be a different indaba for me. Usually, I'm trying to be on the floor and experience everything going around, but this time I have to be more organised, and try to deal with the people and companies that have set time to see with us. I'll get there this afternoon, but I don't even have the schedule. I'm probably the worst person you could be talking to about the indaba right now.
ALEC HOGG: What are they asking you – these international mining companies?
PETER MAJOR: You won't believe it. They're asking for hope. They all want hope and excuses…why they can come here. If this government appreciated how much people wanted to come here, combined with how difficult it is for them to bring money here, I think it would take a different tack entirely. The government knows people want to come here, but it overestimates wanting with doing. Obviously, they want stability, they want certainty, and they know the deposits are here, Alec. We all know how many trillions of dollars of resources we have. Everybody knows there's 6150 abandoned here and that at least the top 1-3 percent should have been opened a long time ago. The top ten percent should have been opened. They're all asking me 'Pete, have you seen changes in government? Is it easier/quicker getting your permitting/your licences? How about the labour relations Pete, is it really as bad as it looks?'
GUGULETHU MFUPHI: So then clearly Peter, you have a very important message to relay on to mining Chief Executives, as well as the South African government.
PETER MAJOR: Yes, I think I do, especially the international ones. The locals know more about it than I do, but the international ones are asking us this. They're asking for a reason. They have 200 other countries to look at. They're asking us because they're interested. They know this country has a 150-year history of producing minerals at a profit where all stakeholders benefitted, and they just want that bridge to be reconnected. They don't want to just walk away from something they were becoming comfortable with, and that was reliable.
ALEC HOGG: The opportunities are again being emphasised by Sibanye – spun off from Goldfields – that seems to be a star performer of the gold market today. Did you have any chance to look at the production update, which clearly, investors enjoyed?
PETER MAJOR: I spent more time looking at Harmony, my alma mater, and Amplats. Let's talk about Sibanye Alec, because I just came from a two-hour discussion in conference with many big players. What this industry needs – we all say it's a Steven Jobs, a Bill Gates, or a Sergey (the guy that started Google) – but the environment here will kill anything like that. It's like bacteria being on a sterile operating table. That regulation, the government's way of doing things, and the labour union's way of doing things: it will kill any kind of Steven Jobs. Is Neil Farnham, Steven Jobs? He's definitely the best we have on the mining side, and if we just give those people a little more freedom to do what they can do; we can have many more profitable mines running. We'd have many more jobs created, but this is micromanaging. Everybody is micromanaging our gold mines in the country. Fifty-three million people and institutions are trying to micromanage how we run our mines in this country.
GUGULETHU MFUPHI: Peter, you said that you spent time reading up on Harmony Gold. Are you buying their story?
PETER MAJOR: Yes, I want to. I want to and I know they can do it. They actually have decent South African operations that oversee the Papua New Guinea deposit. I think they missed the best opportunity they'll ever get, to have made money from it. To have 12 years of a running gold price: that's the time you dispose of an asset, or you bring in a JV partner whose going to do the funding. I think they missed that, but gold is still holding up pretty well at 12.50. Copper is holding up. If there's another run in the gold and copper price, they have to utilise that opportunity, but locally they have a handle on things. If the regulations/environment can just back off a little bit, I believe Harmony can beat the All Share Index for the next year or two just on the operations they have – if gold just stays where it's at now – it doesn't have to go up any more. It's not an easy 'slam dunk'. It's not a pension fund investment here. This is one you have to watch if you buy it.
ALEC HOGG: Well, anything but…down 7.7 percent today Peter, if you had your pension fund in that, you'd be a bit scared.
PETER MAJOR: I'd rather buy it when it drops seven.
ALEC HOGG: So you might be a buyer, then. What about Anglo Platinum?
PETER MAJOR: No, I'm too worried about Anglo Platinum. I think it's trading too pricey for what its fundamentals are, Alec. I think Harmony has a 50-50 chance of going up from here, but I just worry. I hope I'm wrong, but I think Amplats is trading too expensive for what their fundamentals are indicating.
ALEC HOGG: Fundamentals related to labour, or to what they have in the ground.
PETER MAJOR: What they have in the ground: their grade, their productivity, and their working costs. You have to remember Alec, the average ton of rock that comes out of Anglo Platinum is maybe 120 dollars per ton – at most – and you have ten complex minerals to take out of that. Your average ton of rock coming out of a gold mine is 200 dollars. If I look at this platinum price 1450/1400 dollars, I don't see platinum prices going up in the next year. I just think the share price is trading too high for the kind of earnings its likely to generate for the next few years, and there's no dividend to speak of for an investor to hold onto it.