Charlotte Mathews
1 October 2008
Johannesburg — RECENT widespread market turmoil has eliminated the gains notched up over the past 18 months by even the world's biggest and most diversified resources groups.
Fund managers said yesterday they did not see buying opportunities at current levels because markets were too volatile.
BHP Billiton, trading at R187,95 at the JSE's close, was last at this level in March last year, and Anglo American, at R278, is back to its late-2006 price. Both peaked four months ago, Billiton at R320 and Anglo at R548. The smaller companies have been hit even harder. Coal producer Petmin has plunged from 450c to 320c in the past two weeks after touching 535c in May, while Wits Gold at R35,05 is a quarter of its 12-month high of R180. Petmin has operating mines whereas Wits Gold is still at the exploration stage.
In the platinum sector, Impala Platinum, the second-biggest producer in the world and a generous dividend payer, has dropped 40% of its value, and Wesizwe Platinum, currently seeking finance to build its first mine, has lost 70%.
Among the mining and resources unit trusts tracked by Equinox, an investment service provider, three-month losses range from 24%-33%.
The only metal showing some resilience is gold. It rose to $909/oz on the US House of Representatives' refusal to approve a $700bn markets bail-out package and many market commentators were predicting this week it would top $1000/oz as investors sought its "safe-haven" status.
But even the JSE's gold index was only at 1816 from 2850 in May. Metam senior resources analyst Stephen Roelofse said gold appeared considerably overvalued at present relative to the currencies, "but there is quite a lot of risk aversion and you would expect gold to trade at a premium in such a market".
The retreat from mining equities has been indiscriminate, with even the coal and energy-related counters holding offtake agreements under pressure.
Toronto-listed Homeland Energy, which opens its first coal mine at Kendal in SA today and has said it is considering a secondary listing in London or Johannesburg, recently put plans to issue convertible debentures on hold because terms were unfavourable.
President and CEO Stephen Coates said in an interview yesterday companies had to be cautious at this stage but a secondary listing was still part of Homeland's plans to expand its trading base.
"I would not do it in today's market but markets ebb and flow."
Although markets are responding to the financial crisis unfolding in the US and spreading to Europe, commodities prices and shares have been driven up in the past few years by prospects of supply shortfalls from rapid industrialisation in India and China. They were assumed to be relatively immune to the US economy.
Metam's Roelofse said equity prices were not reflecting demand but investor sentiment. Still, zinc and aluminium stocks were building up, suggesting that, even if it were only temporary, there was a lack of demand. Hedge funds could be taking short positions on commodities shares, expecting the prices to fall, and these factors added up to drive prices down, he said.
Omigsa resources head Anwaar Wagner said that for the past six months Old Mutual's view had been that the global economy was slowing and metals prices were high. The Old Mutual Mining & Resources Fund had retained its stakes in the large diversified, profitable and better-run companies and avoided smaller, higher-cost companies with exposure to a single commodity.
In the past six months the fund moved out of minerals towards agricultural and industrial commodity firms such as Sappi, Mondi and AECI , and had hedged against some downside and bought offshore counters at exchange rates of about R7,20/$-R7,40/$.
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