The Johannesburg stock market, the capitalist heart of South Africa’s ‘City of Gold’, is close to relegating the last bullion producer in its bluechip index, the latest sign of the precious metal losing its place in an economy it once dominated.
In its latest quarterly review of stocks on its benchmark Top-40 Index, the bourse put AngloGold Ashanti at number 38, clinging to membership of an index now dominated by banks, technology companies and diversified mining firms.
Should the long-term decline in AngloGold’s share price persist – it is now worth R116.50 a share, just over a quarter of its record high in late 2011 – it is likely to face the axe in the December review, the first time the index will have been without a gold producer.
For a country that accounts for a third of all the gold ever mined, that is a significant milestone.
Some 130 years after gold was discovered on the Witwatersrand, the sun is setting on bullion mining as it becomes harder technically – and financially – to recover every ounce.
The most profitable reserves are long gone and the likes of AngloGold dig as deep as 5 km (3 miles) for a metal that in three years has lost more than 35% in value, while mounting energy, labour and safety costs chip away at profits.
Worth $3.4 billion, AngloGold is now the world’s ninth-largest gold mining company by market capitalisation, less than half that of Newmont Mining, the world’s most valuable gold miner, according to ThomsonReuters data.
“It is probably the most unloved sector in the entire market,” said Chris Hart, an economist with Johannesburg-based Investment Solutions.
As recently as 2011 rivals Gold Fields and Harmony Gold were also in the Top-40. Hart expects AngloGold, listed separately on the JSE in 1998 and a unit of Anglo American until 2009, to fall below the bluechip cut-off before the end of the year.
The spot above it is now held by Capitec, a low income-focused bank whose shares have gained nearly 60% this year, symbolic of a financial sector that has boomed as more post-apartheid South Africans have gained access to credit.
The finance, real estate and business services sector accounts for more than a fifth of gross domestic product, while mining has shrunk to less than 8%.
Gold’s prospects are also being hurt by an expected hike in US interest rates. Higher rates increase the opportunity cost of holding the metal, a non-interest paying asset. The possibility of industrial action by the hardline Association of Mineworkers and Construction Union has not helped. .
For AngloGold, relegation from the top flight would be likely to cost it more ground in the short term as index tracking funds are forced to withdraw.
Breathing down its neck is property group Redefine and Pioneer Foods, a cereal and juice producer that a year ago was only half AngloGold’s size.
Less than $100 million in market capitalisation, about 0.5%, separated the three when the index review was done last month.
Next in line are life-insurer MMI Holdings, which has its sights on South Africa’s lucrative short-term insurance market, and Resilient Property Fund.
Gold was first discovered in 1886, spurring a rush for the world’s richest reserves and an economic boom that led the Afrikaner-led Zuid-Afrikaanse Republiek into war with the British Empire and turned some empty hills into one of the world’s major cities.
“We’ve seen the last deep level shafts sunk for a generation and only good policy and positive investor sentiment will ensure the sector’s survival,” said Hart.