Johannesburg - A recovery in metal prices coupled with the weakness of the rand against the dollar have led to a rally of JSE resource stock prices as investors bought up minerals, but the mining stocks are not out of the woods as they are still perceived as risky buys.
The gold and platinum spot prices, which had been falling over the past four years, traded higher yesterday with gold reaching $1 119 (R18 320) an ounce, which is close to a two-month high, while platinum gained 1.61 percent to $874.15 an ounce resulting in a boost in the resource-based sector on the JSE yesterday.
Lonmin, the world’s third-largest platinum producer, was the biggest winner. It surged by as much as 31 percent before ending at 27.82 percent up at R12.59 a share.
Rene Hochreither, a mining analyst at Noah Capital Markets, said the falling rand was helping the resource sector, particularly platinum.
He said Lonmin was an attractive stock because its share price was low.
“Because the share price is so low, it is showing more value than other platinum counters. The recent low share price is clearly an overhang from the rights issue,” said Hochreither, referring to the R5.7 billion rights issue which was finalised last month.
“The falling rand has helped see gains in the platinum shares, platinum gains more on the weaker rand.” he said.
“We are likely to see more volatility in most commodities on news of continued weaker growth from China.”
He noted that Lonmin had led the recent rout in platinum shares because it had unhappy shareholders, but the recent low price was showing better relative value compared with other platinum shares.
African Rainbow Minerals was also a major gainer on the JSE, adding 13.04 percent to R51.95 a share.
Anglo American Platinum rose by 12.24 percent to R209.31 a share, and its rival Impala Platinum, the world’s second-biggest platinum producer, was 6.24 percent higher at R26.56 a share.
Listed gold producers Gold Fields lifted 13.13 percent to R58.60, while AngloGold Ashanti added 9.34 percent to R147.50 and Sibanye Gold ended the day 5.87 percent higher to trade at R37.35.
Peter Major, a mining consultant at Cadiz Corporate Solutions, said yesterday’s share price movements were as a result of changing sentiment towards commodity prices and shares.
However, mining stocks, particularly those with significant South African operations, were still quite risky buys and not suitable for most investors, he said.
“The rout has been driven by fundamentals, justifiable sentiment and the huge financial and operational gearing in these companies. Lonmin has more of both gearing than any company I know of in the mining industry,” Major said.
“South Africa’s mining industry is in such a perilous state today, it almost has infinite gearing.
“When you see big volatility in stocks, it means people are very uncertain how to value them. South African mining shares were once ‘the core holdings’ of investors across the world. But now they are pretty much for trading and opportunists only.”
After being rocked by strikes and last year’s 29 percent drop in platinum prices, last month Lonmin completed a R5.7 billion rights issue discounted at 94 percent to the market price to help boost its balance sheet.
BUSINESS REPORT