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Investors Offload South African Miners

Leading international fund managers have reduced their holdings in South Africa’s natural resources sector since fighting at Lonmin’s Marikana mine resulted in the deaths of 44 people last month, with some investors making a strategic decision to unwind their exposure in the country indefinitely.

Striking mine workers demonstrate as they protest over wage demands outside the Nkageng informal settlement on August 16, 2012 in North West, South Africa.
Antonio Muchave | Sowetan | Getty Images
Striking mine workers demonstrate as they protest over wage demands outside the Nkageng informal settlement on August 16, 2012 in North West, South Africa.

The violence at Lonmin’s mine, in which police shot and killed 34 miners after fighting between illegally striking workers cost 10 others their lives, has highlighted the fraught nature of labor relations in South Africa, as well as underscoring political uncertainty around the sector.

Over the weekend, South Africa deployed about 150 army personnel to help police quell violent protests at Lonmin’s Marikana mine as the government pledged to crack down on illegal strikes, according to Bloomberg.

One global institution told the Financial Times that it had sold virtually all its holdings in South Africa’s mining sectorand in miners with significant businesses in the country – a shift characterized as “indefinite.”

Other brokers and advisers pointed to a trend whereby international investment dollars are being pulled from the country’s mining sector, largely to be replaced by funds from local institutions.

“A sell-down by international institutions has certainly taken place and in some instances we’ve seen a migration towards South African investors,” said Rajat Kohli, global head of mining and metals at Standard Bank.

South Africa’s mining sector has been rocked by events at Marikana, with several companies in the platinum and gold sectors being hit with wildcat strikes and wage demands.

AngloGold Ashanti and Gold Fields have underperformed the FTSE All Share Mining index by 7-10 percent in sterling terms since labor unrest and violence broke out in the platinum sector in mid-August, while Anglo American has also underperformed but by a lesser amount.

Anglo American last week shut down its entire platinum operations in Rustenburg after staff experienced intimidation and threats whilst trying to report for work, while 15,000 employees at one of Gold Fields’ mines last week started illegal strike action.

One fund manager said he had been avoiding South African exposure for some time, preferring to place bets on platinum – 75 percent of which is produced in the country – through the commodity rather than by buying equities.

“We have always felt that people were underestimating the issues down there and possibly still are,” he said. “You would have to have an incredibly compelling reason to be long mining in South Africa.”

Mr. Kohli said the ruling African National Congress party’s electoral conference later this year is one future turning point. Julius Malema, the firebrand former youth leader of the ANC who has leadership ambitions, has called on more workers to join protests and strike action.

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