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Views Article – Sharenet Wealth

Share Picks, South Africa

Mining Charter: With Negative Sentiment, Comes Great Buying Opportunities

The minister of Mineral Resources, Mosebenzi Zwane, sparked an industry wide sell-off as he released the updated Mining Charter on Friday, the 16th of June. The Mining Charter was worse than expected, and even made the ZAR tumble to R12.90/$. The Chamber of Mines have announced that they will fight the updated Mining Charter in court, as they and other stakeholders were not consulted prior to the release of the Charter.

The updated Mining charter was not well received by the Chamber of Mines, opposition parties and even the ANC itself. As is, the mining charter will see disinvestment in the industry and job losses across the board, which is exactly what labour unions cannot afford. The mining sector have shed at least 60,000 jobs in the past 5 years, and the new mining charter will certainly not bring those jobs back.

The controversy around Minister Zwane is also stacking up, after a report that Minister Zwane was sent on a trip to India, paid for by the Guptas in October 2012. The minister has defended the Charter, saying that it is the one of the government’s tools to aid in the “radical economic transformation process.”

Mining Charter III: What you need to know

The new Mining Charter will compel companies to increase their 26% black-owned assets to 30%, giving them a year to do so. This new rule will force companies to sell new stakes, which will dilute existing shareholders returns. The ’once empowered, always empowered’ rule will fall away and companies will need to top-up their black ownership if it has changed since then, which in most cases has occurred.

Mining companies also need to pay 1% of annual turnover to communities, before any other obligations are met. Other details include that there needs to be 50% black ownership for new prospecting rights, and 80% of all services and 70% of goods must be procured from BEE companies.

Companies to watch:

With the market digesting the potential impact of the Mining Charter, a few buying opportunities may have arisen. Looking at current valuations, my favourite resource companies at the moment are: Anglo American Plc, Sibanye Gold and BHP Billiton.

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Trade Anglo American From 0.3%

Anglo American Plc is trading around a low of R160 per share, coming down from a 12-month high of R236.87 per share. Anglo American is a well-diversified mining conglomerate with operations in South Africa, South America, Australia, North America, Asia and Europe. At the moment, it is not paying any dividends, but its Price/Earnings ratio is below 8. De Beers, Anglo’s diamond operations, is also seeing positive sales in the most recent sales cycle.

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Trade Sibanye 0.3%

Sibanye Gold recently concluded their acquisition of platinum miner Stillwater Mining Company in North America, which is the only palladium and platinum producer in the USA. I believe there is major upside to the share price of Sibanye in the short term. The price was negatively impacted due to the rights offer, but should start to pick up soon.

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Trade BHP Billiton From 0.3%

I have included BHP Billiton, because it is the only JSE listed miner that is not impacted by the Mining Charter, and is also the single largest mining conglomerate in the world. Billiton have zero exposure in South Africa and its major mining operations are in Australia. It’s a big player in iron ore, coal, petroleum, copper, natural gas, nickel and uranium.

In a well-diversified portfolio, there is place for some investment in resources, although it is riskier than other sectors. The timing at which to increase and decrease your exposure is extremely important and not easy to get right. I believe that, for the time being, the sector is oversold and it could be a good time to increase the exposure to resources in your portfolio.

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daniel

Daniel Nel
Analyst and Securities Trader 

Daniel is a full-time analyst and securities trader, and is responsible for equities research across industries. Although he grew up in a small town in the Klein Karoo, Daniel has always been interested in both locally and internationally traded companies. Daniel has been actively investing and trading on the JSE and other global exchanges since starting his Bcom Investments Degree at the University of Stellenbosch, which he completed in 2014 . During his studies, Daniel worked as an intern at Kruger International in Johannesburg in 2015, gaining valuable experience from Hein and Mia Kruger. He is currently a CFA candidate.


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