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Foreign investors shun SA gold stocks on virus fears

Non-residents sold a net R1.84bn of the country’s gold shares since the beginning of last week through Monday.
Image: Waldo Swiegers/Bloomberg

Not even a record rally can entice foreign investors to South African gold stocks.

With gold prices soaring on the heels of monetary stimulus, shares in producers of the metal are back in favour around the world. But investors are fretting about supply disruptions at South Africa’s mines as a result of soaring Covid-19 infections, according to Benguela Global Fund Managers.

Non-residents sold a net R1.84 billion of the country’s gold shares since the beginning of last week through Monday, even as a Johannesburg index of gold miners climbed more than 9% to the highest on record. That’s 42% of the total outflows from the equity market in that period, more than any other sector, according to JSE data.

Virus infections in Africa’s most-industrialised economy climbed above 370,000 this week, making it the fifth-worst affected country globally. Gold mines, already among the world’s highest-cost producers, are struggling to boost output after a lockdown that temporarily closed down operations.

“The risk of supply disruptions is becoming higher, especially at deep-level mines, as the infection rate increases,” said Karl Gevers, a portfolio manager at Johannesburg-based Benguela, which oversees about $1.2 billion. “History shows that a higher gold price is followed by higher costs 12 months later as miners start moving into lower grades, and this would cause some worry for investors.”

The rand’s 5.3% gain against the dollar in July is also eroding profits for gold miners, who sell the metal for dollars, but pay costs in the local currency. That may be prompting some investors to take profits on gold stocks, said Gevers.

The FTSE Johannesburg Gold Mining Index of five companies is up 15% this month, compared with the 3.7% advance for the benchmark FTSE JSE Africa All Share Index.

© 2020 Bloomberg

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Foreign investors starting to understand the criminal dimension of the ANC government.Nothing is save from their sticky fingers.

Latest Covid-19 developments in South Africa recently had an impact on South African gold miners listed on Nasdaq, except for Sibanye Stillwater (SBSW), which seems to retain its popularity in the USA for perhaps two reasons a) it has a huge stake in local DRD which is not a mine (with its associated risks in South Africa as outlined), but a highly profitable, ungeared, above ground, gold factory and b) diversification into USA Palladium and other metal assets. The ever rising gold price and persistent demand for PGM’s must be really good news for Neal Froneman and his team.

I think they shun these shares due to ANC policy and bad mine management!

End of comments.

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