Mining stocks rally in Johannesburg

But analysts call for caution.

South African mining stocks gained the most in six weeks as a slump in the dollar made commodities priced in the US currency more attractive to investors.

The rally may not last as fundamentals for producers, such as supply and demand and the cost of operations, haven’t yet shown signs of improvement, according to analysts at Vunani Securities and Momentum SP Reid Securities in Johannesburg.

“The most important driver at the moment is the dollar that’s slightly weaker and that has provided support to all commodity prices,” said Hurbey Geldenhuys, a mining analyst at Vunani Securities. “One should still be cautious. Many of the fundamentals haven’t shifted.”

The 16-member FTSE/JSE Africa Mining Index advanced as much as 7.5% in Johannesburg, the most since December 23, and the highest level since November. African Rainbow Minerals led the gains, soaring as much as 27%, the most on record. Platinum producers Lonmin and Impala Platinum Holdings jumped 15% and Anglo American rose 13%. 

South Africa’s currency was 0.3% weaker against the US dollar at 15.9727 at 11:41am in Johannesburg. The Bloomberg Commodity Index, which tracks the prices of a basket of minerals, climbed a second day, adding 0.6%. Gold for immediate delivery rose 0.3% to $1 145.71 an ounce while platinum gained 1% to $888.05 an ounce.

Harmony Gold Mining Company, the best-performing stock on Johannesburg’s benchmark index this year, gained 13%. The gold producer, which has more than doubled in 2016, said it is seeking to make acquisitions and repay debt after a plunge in the rand bolstered profit margins in the second quarter. Gold priced in rand has climbed 19% since December 1 and traded at R18 329 ($1 145) an ounce at 10:58am in Johannesburg.

Metals, and the companies that produce them, have slumped as a slowdown in China, the biggest consumer, led to oversupplies. The collapse in commodity prices has left many companies in the industry trading at all-time lows and with increased volatility.

“Your view on commodity prices is going to determine when you would begin piling into resources and right now the outlook is still uncertain,” Stephen Meintjes, head of research at Momentum SP Reid Securities, said by phone from Johannesburg. “It’s uncertain enough for caution to still be warranted.”

©2016 Bloomberg News

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