in brief in the news By David McKay
MINING
Exports show SA production slump may be smaller
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As more and more miners return to full production, fears of metal price contraction are being allayed. For now. ibanye-Stillwater, the gold and the recovery in mining stocks has now run its platinum producer, said in a trading course. PGM shares have rerated in the past statement earlier this month that it three months; even in absolute terms, the didn’t expect a high risk of further likes of Anglo American Platinum and Impala operational disruption because of Covid-19. Platinum were nearing their February highs at The statement confirms a growing the time of writing. expectation that SA’s mining sector might But it also needs to be remembered that be over the worst of the Covid-19 pandemic, SA PGM stocks held up well even though the extent of which was retrospectively Nornickel, the Russian producer, and North demonstrated in recent Stats SA data that American production continued largely showed mining production for June had fallen unabated through the worst of the pandemic. about 28% year-on-year. “The delta in the South African supply According to Henk Langenhoven, chief ramp from here could then be smaller than economist at Minerals Council South Africa, previously expected, which bodes well for the sector is “bouncing back” as measured the sustainability of prices off current levels by the volume and value of exports. Export given an expected demand recovery into the volumes were, in fact, 28% higher in June than 2H20 (second half of this year),” said Morgan at the same time last year, while the value of Stanley in a note last month. export sales, which had fallen to a four-year low In other words, a significant kick-up in SA in the five weeks following the government’s PGM supply is not expected to heavily disturb hard lockdown, had recovered to about R40bn the pricing of the underlying metals. for the month in April – and were rising. The outlook for gold is potentially even rosier. “We expect the average real production Although labour intensive and therefore more decline between 2019 and 2020 to be 11%,” crowded and logistically challenging, the dollar said Langenhoven, an outlook that compares and rand gold price improvement has more with expectations of a 15% decline previously. than offset production shortfalls. According to He thinks the weighted average nominal Mark Bristow, the SA-born CEO of Canadian (unadjusted) decline in mining production will gold miner Barrick Gold, we should expect be at 7% compared with 12% previously. significant volatility in the gold price, but no The worst-case scenario is correction to previous levels. We expect the average that average real (adjusted) “We won’t get a return to $1 100 real production decline production could be 15% lower to $1 200 per ounce,” he said in an between 2019 and compared with a decline of 21% interview with finweek following 2020 to be previously, Langenhoven said. the company’s second-quarter The nominal weighted average financials. “The gold price is going for 2020 is forecast to be an 11% to settle at a new (higher) base as decline (compared with a 17% all the major economies are printing decline previously). money.” The well-established theory The upshot of the forecasts is mining is that when money becomes cheaper, production and sales will not be as bad as investors turn to gold, which is viewed as a previously expected, as another trading store of wealth and hedge against inflation. statement – this one from Harmony Gold – Bristow also thinks that although stimulus also illustrates. Harmony said this month it efforts have put some vim into equities, the expects to be at full production from August; real damage perpetrated by restructuring and Sibanye-Stillwater and Northam will be at full staff furloughs is yet to make its presence felt capacity in the fourth quarter. at a consumer level. “That’s still a hidden part Set against impressive dollar-based pricing of the crisis. People don’t generally want to see for gold and platinum group metals (PGMs) the gold price go high as it has because it’s in particular, assisted by renewed rand recognition of a high-speed collision.” ■ weakness, raises the question as to whether editorial@finweek.co.za
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11%.
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Henk Langenhoven Chief economist at Minerals Council South Africa
A significant kick-up in SA PGM supply is not expected to heavily disturb the pricing of the underlying metals.
finweek 27 August 2020
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