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Unrest sends mines’ bond yields soaring

THE LABOUR unrest that has spread across South Africa’s mining industry is pushing up borrowing costs for companies relying on Africa’s largest economy for much of their output.

Yields on Gold Fields bonds due in October 2020 jumped last week to a two-month high after 15 000 workers at its biggest mine started an unprotected strike.

Rates on AngloGold Ashanti’s notes due in April 2020, which traded at a premium to its Johannesburg-based rival before violence started at Lonmin’s platinum mine in Marikana last month, have dropped.

The shutdown of mines because of labour upheaval, which has resulted in the death of 45 people over the past five weeks, and criticism of the government’s handling of the violence, is pushing up dollar borrowing costs. This is threatening to undo efforts by the Reserve Bank to stem slowing economic growth with an unexpected interest rate reduction in July.

Rates on South African dollar-denominated corporate notes over emerging market peers narrowed last week to the smallest gap since January 6, according to JPMorgan Chase indices.

“One of the reasons for the yield spread between AngloGold and Gold Fields has to do with where the two companies’ assets are located,” Standard Stockbroking chief investment officer Rudi van der Merwe said at the weekend. “If the political situation in South Africa doesn’t change, it will become increasingly difficult for corporates to issue bonds at lower yields.”

South Africa depended on mining for 8.8 percent of gross domestic product, two-thirds of exports and about 500 000 jobs, the Chamber of Mines said.

Fitch Ratings, Standard & Poor’s and Moody’s Investors Service have cut their outlook on South Africa credit to negative from stable since November, citing unsustainable spending and political instability.

Gold Fields has slumped 7 percent since the strike started on August 10 at Lonmin’s Marikana unit. The stock fell 0.89 percent yesterday to close at R104.50.

AngloGold, which lost 0.05 percent to R293.71 yesterday, has gained 5.4 percent, while Toronto-based Barrick Gold and US-based Newmont Mining have jumped more than 20 percent.

“We have seen very little impact on our bond pricing over the last couple of weeks, in fact the secondary pricing of our bonds are almost the same as early August,” Gold Fields spokesman Sven Lunsche said yesterday.

“The yields on our bonds make no difference as the rates on them are fixed,” AngloGold spokesman Alan Fine said.

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