Join Mineweb editor Warren Dick, as he talks to Stuart Theobald, head of research house Intellidex, about whether the upswing in commodity stocks is sustainable and if it is, which companies are better placed as future winners?
Are the good times back? The JSE’s mining index has gained nearly 60% in the first ten weeks of 2016. Some shares – Anglo and the platinum producers among them have nearly doubled investors’ money.
Marginal gold producers like Harmony are up over 400%.
Yet all of this paints a story of a partial recovery – the index is still half of what it reached in the pre-2008 financial crisis-driven crash. While the underlying drivers seem thin – commodity prices have ticked up slightly, these coupled with the weaker rand have supported mining stocks. In this Moneyweb Investor article, Stuart Theobald notes that this is the first glimmer of light long-suffering shareholders have seen in their mining stocks since then.
The question everyone is asking is: can the rally be sustained?
On the one hand global economic growth is well off past highs, and supply far exceeds demand. On the other hand, many mining companies have been forced to restructure their operations significantly. This has led to over-leveraged balance sheets being repaired, unit costs coming down, and a relentless focus on returns by executives of mining companies.
Anglo American is in the process of reducing its number of assets from 45 to 15, and has decided to focus on holding quality assets in three commodities – diamonds, copper and platinum – all of which have more exposure to the consumer, rather than infrastructure. It is cutting overheads and has reduced capital expenditure. These efforts could have a significant impact on profitability.
Similarly, says Theobald, Kumba has cut costs and has shifted production from higher cost mines to lower cost mines. The company is well placed for growth – but iron ore prices need to increase first.
Like most of the platinum producers, Lonmin has cut costs brutally, retrenching 3000 staff, with another 3000 to go. While its future looked dire a few months ago, now may be the time to invest.
And so the story goes. Assore, African Rainbow Minerals, Assmang, ARM: Platinum – all have restructured into leaner and meaner operations.
But the confusion surrounding China and the commodities required to grow its economies remains. How should investors consider this? Join the webinar to hear the discussion.