JOHANNESBURG- The struggling South African mining industry, which shed 70000 jobs since 2012, faces the threat of further retrenchments as the bullish rand firms against the dollar in the wake of Cyril Ramaphosa’s election.
Rene Hochreiter, an analyst at Noah Capital, said last week the rand was too strong for mining as it had firmed on expectations that Ramaphosa would act to ensure government departments toed the line and further downgrades were avoided.
The rand/dollar exchange rate strengthened to R12.24 after Ramaphosa’s victory, from R13.53, and the yield on the R186 improved from 9.28 percent to 8.47percent, with the JSE gaining almost 3000 points.
On Friday the rand was trading at R12.2081 to the greenback.
The strong rand was an indication that markets favoured Ramaphosa as president of both the ANC and South Africa, and there was also a perception that he would implement policies that promoted economic growth, Hochreiter said.
“If the rand carries on strengthening it spells gloom for the mining industry,” he said, adding that mining companies were likely to start cutting back this year.
“If things get ‘worse’, and the rand goes to R11, retrenchments will be unavoidable,” he said.
“If Ramaphosa reinstates Mcebisi Jonas, Nhlanhla Nene or Pravin Gordhan as finance minister, the rand could go to R11 or even less to the dollar, and that is bad news for the mines.”
Most of the costs in mining are rand based, but revenue was set by a combination of the dollar metal prices and the rand/dollar exchange rate.