South Africa’s Colour Divide Affecting Mining

South Africa’s latest mining overhaul could be mired in a long legal battle after producers vowed to stop the changes even as the government said it’s time the black majority benefits from the country’s mineral wealth.

Mineral Resources Minister Mosebenzi Zwane unveiled new rules for so-called black economic empowerment, including tougher ownership requirements, a community-development tax equal to 1 percent of revenue, and expanded quotas for buying goods and services from black-owned companies.

The Chamber of Mines, which represents South Africa’s biggest producers, plans to start fighting the plan in court as soon as next week.

“This charter’s not going to see the light of day anytime soon,” Peter Leon, the Africa co-chair at law firm Herbert Smith Freehills LLP, said by phone on Thursday. “We’re looking at years of protracted litigation.”

 

Producers are fuming after having been kept in the dark on the details of the updated Mining Charter and the chamber refused to attend a last-minute meeting with Zwane’s department earlier Thursday, saying it wouldn’t be coopted into lending support.

The new rules, which don’t give credit for deals already concluded and from which black shareholders have since divested, will deter investment and serve as a “nail in the coffin” for the industry, said Steve Phiri, the chief executive officer of platinum producer Royal Bafokeng Platinum Ltd.

Court Battle

“We’re confident of our prospects in court,” he told reporters in Johannesburg. “I would not rule out the possibility of this matter being decided by the highest court in the land.”

Miners would still prefer to reach a negotiated solution but are prepared to fight the changes if needed, Chamber of Mines President Mxolisi Mgojo told reporters.

Under the new rules, companies must ensure that their South African assets are 30 percent black-owned within 12 months, up from a previous level of 26 percent. If upheld, several of the country’s biggest mining companies would have to sell new stakes, raising the risk of dilution for existing investors.

“The value destruction is hard to quantify and the uncertainty will persist,” Liberum Capital Ltd. analysts including Ben Davis said in a note. “What is certain is that South Africa continues to be a terrible destination for mining investment and assets in South Africa will continue to trade at a discount.”

South Africa holds the biggest reserves of platinum, chrome and manganese and mining companies operating in the country include Anglo American Plc, Glencore Plc and AngloGold Ashanti Ltd.

White Male

The push for increased black ownership of the industry is part of an effort to address the legacy of apartheid and, with its highly paid, mainly white, male executives overseeing hundreds of thousands of workers laboring in some of the world’s deepest and most dangerous operations, the mining industry is starkly symbolic of the country’s persisting inequalities. Yet critics say many deals have mainly benefited the politically connected elite and deter foreign investors.

Mining companies may also be getting caught in the cross hairs of local politics and posturing ahead of the ruling African National Congress’s leadership conference in December, said Theo Venter, a political analyst at North West University’s business school in Potchefstroom, west of Johannesburg.

The party will seek an urgent meeting with Zwane on the charter and is concerned about potential job losses as a result of the new charter, it said on Thursday.

“Given the fact that the mining industry has shed about 60,000 jobs in the last five years, we don’t want legislation that will add to that bloodbath,” ANC spokesman Zizi Kodwa said by phone.

The ANC conference will pit rival factions, including one led by President Jacob Zuma, against each other.

“This is part of an effort by the Zuma faction to provide hard evidence that they are trying to put radical economic transformation into practice,” Venter said. “They are saying: ‘We are not only talking, we are doing something.’”

Cheerio

The Pinstripe and Bowler Club shares information with MF Solutions Ltd

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Aussie Snapshot

If you’re wondering how Australia’s overall economy has been faring lately, especially since Australia’s Q1 GDP report will be released next week and the RBA would be giving another rate decision and statement, also next week, then today’s economic snapshot is just for you.

Growth

  • Australia’s Q4 2016 GDP printed a 1.1% quarter-on-quarter expansion, beating forecasts for a 0.7% increase.
  • The rebound means that Australia avoided a technical recession after Q3’s disappointing 0.5% contraction.
  • The 0.9% increase in household spending (+0.4% previous) was the main driver for the recovery, since it added 0.5% to GDP growth (+0.2% previous).
  • Private business investment was also a driver, adding 0.2% to GDP growth (-0.1% previous).
  • This marks the first increase in private business investment after nine consecutive quarters of declines.
  • Government investment became a major driver again after being the main drag in Q3.
  • Government investment increased by 7.7% (-7.8% previous), adding 0.3% to total GDP (-0.4% previous).
  • The 34.2% surge in national defence investment, in turn, was the main driver for total government investment.
  • Net trade was also a driver, adding 0.2% to total GDP, thanks to the 2.2% increase in exports.
  • Trade was a dud back in Q3, since exports and imports cancelled each other out.
  • Year-on-year, Australia’s economy grew by 2.4% in Q4.
  • Also, Q3’s +1.8% annual growth, which was the slowest year-on-year expansion since 2009, was upgraded to +1.9%.
  • The major driver for the faster year-on-year growth was net trade, since it added 1.5% to total GDP growth (+0.7% previous).
  • Household spending was also a major driver, adding 1.5% to annual growth (+1.4% previous).
  • Meanwhile, private business investment was less of a drag, subtracting only 0.8% from GDP growth (-1.4% previous).

Employment

  • Australia’s seasonally-adjusted jobless rate dropped from 5.9% to 5.7% in April.
  • This is the best reading since January 2017.
  • Meanwhile, the labor force participation rate held steady at 64.8%, which is the shared best reading since July 2016.
  • This means that the drop in the jobless rate was due to the number of unemployed blokes and sheilas falling from 751K to 732K.
  • This further means that the drop in the jobless rate is a healthy one.
  • In terms of job growth, the Australian economy generated a net increase of 37.4K jobs.
  • This is a smaller increase compared to the 60.0K increase in March, though.
  • Moreover, the net increase in jobs was due to the 48.96K increase in part-time employment, which was partially offset by the loss of 11.60K full-time jobs.
  • This is the first decrease in full-time jobs after two straight months of solid increases.
  • Still, the Australian economy has been generating jobs for seven months straight, which is something.

Inflation & Wage Growth

  • Headline CPI rose by 0.5% quarter-on-quarter in Q1 2017, matching Q4 2016’s reading.
  • Year-on-year, CPI advanced by 2.1%, accelerating from the previous quarter’s 1.5%.
  • This is the best reading in 10 quarters and also marks the third consecutive quarter of improvements for the annual reading.
  • Moroever, headline CPI is now within the lower bound of the RBA’s target range.
  • For reference, the RBA’s target range for annual headline inflation is 2-3%.
  • Meanwhile, the annual core reading rebounded from 1.6%, a low not seen since 1998, to 1.9%.
  • This is the best reading in five quarters.
  • On a quarter-on-quarter basis, 6 out of the 11 sub-components printed increased while the rest took hits.
  • Year-on-year, only 3 of the 11 sub-components got hit.
  • Interestingly enough, the biggest driver for quarter-on-quarter CPI was the 0.8% increase from the housing component, which added around 0.2% to CPI.
  • And of the housing component, the 2.2% increase in the cost of utilities accounted for 0.11%, the 1.0% rise in the price of new dwellings accounted for about 0.09%, the 0.1% rise in rent added 0.01%, and the rest only had very minimal contribution.
  • The soft rise in rent and higher cost of utilities was anticipated by the RBA, but the higher cost of dwellings was not.
  • Moving on to wage growth, total hourly rates of pay (excluding bonuses) in both the private and public sector increased by 0.5% quarter-on-quarter during Q1 2017.
  • This is a tick faster than the +0.4% reported in Q4 2016.
  • Wage growth has been holding steady at or around +0.5% since Q2 2015 after trending lower from a peak of +1.0 back in Q1 2012.
  • Year-on-year, the wage price index increased only by 1.9%, which is the same pace as in Q4 2016.
  • This is the shared weakest year-on-year increase since comparable records began in Q3 1998.
  • As for trends, wage growth has been steadily slowing since Q3 2012.

Business Conditions & Sentiment

  • The National Australia Bank’s (NAB) business confidence index rebounded from 6 to 13 index points in April.
  • This is the highest reading since 2010.
  • Also, business sentiment has been positive since September 2013.
  • As for NAB’s business conditions index, it climbed even higher from 12 to 14 index points.
  • According to NAB, “employment conditions drove most of the improvement in the month, while profitability was steady. A drop in trading conditions (sales) was only partly offsetting and it remains the strongest component despite the moderation.”
  • In addition, “Solid levels of business conditions have begun to look more uniform across industries, although transport and retail drove most of the improvement in the month of April.”
  • NAB’s labour costs index, meanwhile, finally increased from 0.8% to 1.0%, which is a promising sign for wage growth.
  • Moving on to the Australian Industry Group’s (AIG) performance of services index (PSI), the reading jumped from 51.7 to a three-month high of 53.0.
  • This marks the second month of improving readings.
  • The improvement was broad-based across sub-indices, with the sales sub-index rising by 1.2 points to 55.0 and the new orders sub-index climbing by 2.2 points to 54.5.
  • Unfortunately, the employment sub-index fell by 3.1 points to 51.9.
  • The reading is still above the 50.0 neutral level, though, so payrolls still increased, albeit at a weaker rate.
  • Going to AIG’s performance of manufacturing index (PMI), it recovered to 59.2 after sliding to 57.5 previously.
  • The new orders sub-index shed 1.1 points and dropped to 61.5.
  • However, the production sub-index picked up the pace by jumping 3.1 points to 60.7.
  • Exports also soared by 7.5 points to 58.6.
  • As for business loans, that printed a 0.4% increase in April.
  • Year-on-year, business loans only increased by 3.1%.
  • This is the weakest year-on-year reading since May 2014, as well as marking the fourth straight month of ever poorer readings.

Consumer Spending & Credit

  • Retail trade turnover in Australia fell by 0.1% month-on-month (seasonally-adjusted) in March.
  • This is a softer fall compared to February’s -0.2%.
  • Nevertheless, it still marks the second month of declines.
  • Moreover,retail trade turnover for all of Q1 only increased by 0.27% quarter-on-quarter.
  • In contrast retail trade turnover for Q4 printed a 1.07% increase, so consumer spending very likely took a hit in Q1.
  • Looking at the details, 4 of the 6 major retail store types reported decreases in retail trade turnover.
  • The biggest drag was the 0.5% fall in retail sales from food stores (+0.2% previous), followed by the 0.6% fall (-0.1% previous) in sales reported by cafes, restaurants, and & takeaway food services.
  • Year-on-year retail trade turnover only increased by 2.5%.
  • This is the weakest annual reading in 44 months.
  • In addition, this marks the fifth month of worsening annual readings.
  • As for personal loans, both the monthly and annual readings were in negative territory again in April.
  • Personal credit, on both a monthly and yearly basis, has been falling since January 2016.
  • On a monthly basis, personal credit fell by 0.1% in April, which is a bit softer than the 0.2% fall in March.
  • Year-on-year, personal credit slumped by 1.5%, the same rate of decline as in March.
  • This is the shared biggest year-on-year contraction since April 2012.

Housing

  • After slumping by 10.3% in March, building approvals increased by 4.4% in April, thanks mainly to the 9.6% increase in approvals of private sector dwellings excluding houses.
  • Housing loans to owner-occupiers continue to grow at a steady pace, printing another 0.5% month-on-month increase.
  • Year-on-year, it slowed from +6.2% to +6.1%, which is the lowest reading since September 2015.
  • As for housing loans to investors, they increased by another 0.6% month-on-month in April.
  • On an annual basis, housing loans to investors grew by 7.3%, which is the highest reading since January 2016.
  • Also, housing loans to investors have been steadily picking up the pace after bottoming out at an annual pace of 4.6% back in August 2016.
  • This may mean that speculative pressure on the Australian housing market is still picking up, increasing the chance of a housing bubble.
  • Trend wise, overall housing credit maintained the +6.5% reported in March.
  • Total housing credit bottomed out at 6.3% back in November 2016 and looks like it has been slowly rising since then.
  • As for AIG’s performance of construction index (PCI), it modestly improved from 51.2 to 51.9 in April.
  • Overall construction activity fell, thanks to the drop in housing and commecial building construction being partially offset by the large increase in apartment building construction and engineering works.

Trade

  • Australia seasonally-adjusted trade surplus narrowed to $3,107 million in March.
  • Still, this marks the fifth consecutive month of surpluses.
  • That’s in Aussie dollars, by the way.
  • The smaller surplus was due to imports jumping by 4.6% after contracting by 4.7% previously.
  • This was able to offset the 2.4% increase in exports (+0.1% previous).
  • But on an upbeat note, total exports increased by 5.44% between Q4 2016 and Q1 2017.
  • Imports did increase by 2.44%, though.
  • Even so, the net surplus for all of Q1 is bigger than the surplus back in Q4, so trade was likely a driver in Q1.

Cheerio

The Pinstripe and Bowler Club Shares information with MF Solutions Ltd

Growth To Bust – A Cautionary Tale.

Not so long ago, Mongolia was the world’s fastest-growing economy. Now, by nearly every metric, it’s in a dire fix. Its debt has surged, its currency has plummeted, and its budget deficit has widened alarmingly. Foreign investment has dried up and economic growth all but ceased. Even the poor antelope are beset by plague.

Making matters worse, some staggering bills are coming due. The government, along with a state-backed development bank, is on the hook for more than $1 billion in maturing bonds over the next year, starting with a $580 million payment due in March. By one account, locals are so anxious they’re donating their horses to help avoid default.

Thankfully, better options are available. This week, the government is negotiating with the International Monetary Fund for a bailout, its sixth in less than three decades. China also may be willing to lend a hand, at a price. Yet even if it avoids default, Mongolia should stand as a cautionary tale for the ages.

Sitting on expansive mineral reserves, and sharing a long border with the world’s second-biggest economy, Mongolia long looked like an appealing place to invest. Its economy grew by 17 percent in 2011, as its mines churned out huge amounts of coal and copper to meet Chinese demand.

Ominously, though, government spending rose by 56 percent the same year. With interest rates abnormally low, Mongolia was one of many not-so-creditworthy countries able to borrow on attractive terms as investors pursued higher yields. In 2012, it issued $1.5 billion in “Chinggis Bonds” to splurge on public works. It boosted pay for civil servants and subsidized mortgages. Politicians doled out cash. A flowering of luxury boutiques, fancy hotels and immodestly large statues dotted the steppe.

Then the good times ended, as they always must. China’s economy slowed, commodity prices plunged, and Mongolia found itself in a bind. Growth halted and debt mounted. With foreign-exchange reserves dwindling, a balance-of-payments crisis was staved off only with help from the People’s Bank of China.

A new IMF lifeline would avert an imminent default, but Mongolia needs more than that. Most of all, it must diversify an economy that depends on mining for nearly a quarter of its output and 90 percent of its exports. This in turn requires better schools and a new approach to foreign investors, whom the government has antagonized extravagantly in recent years. Reining in corruption would help. Budgets will have to be tightened so that revenue can be used to build up a sovereign wealth fund, which could eventually be used to smooth out the commodity boom-and-bust cycle.

Attend to all this, and Mongolia’s future still looks bright. It has a young population, a mostly stable democracy, and even an embryonic startup scene. The IMF reckons its mineral deposits may yield $3 trillion over time. An expansion of the immense Oyu Tolgoi mine, now under way, should soon pay hefty dividends. Accepting some pain today will help ensure those riches are well used. It might also bring Mongolia’s wild economic gyrations to an end.

Cheerio

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

No End To The Love Of A Nugget

A partnership between Randgold, AngloGold Ashanti Ltd. and state-owned Sokimo, Kibali shipped 642,720 ounces of gold worth more than $700 million in 2015. That helped increase production of the precious metal in the country from almost nothing in 2011 to more than 25 tons a year.

Production last year fell to 585,946 ounces after technical challenges in the first six months, but output is scheduled to peak at 750,000 ounces in 2018 as the underground operation reaches full capacity, Randgold says.

Other miners have been less successful in Congo. Randgold’s partner, AngloGold, suspended operations in 2013 at the Mongbwalu project, also in northeastern Congo, saying that it couldn’t make the economics of the project work. In the past decade, mining majors Rio Tinto Group, BHP Billiton Plc, Vale SA and De Beers have all held and abandoned mining licenses in Congo for different minerals without making headway.

In short, gold has been in demand for thousands of years, is in huge demand right now and gold has a massive future because everybody loves gold.

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.