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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Call Options Whatever You Want

Traders are buying so many S&P 500 call options right now that the ratio of those contracts to put options hit an all-time high Wednesday, according to Credit Suisse.

A call option is the right to acquire a stock in the future at a preset price. A put option is the right to sell.

“The biggest trend, the most notable thing, is the resumption of the call buying in the S&P,” said Mandy Xu, derivatives strategist at Credit Suisse. With “Trump coming out with a new tax plan, we’ve seen that upside demand in the market.”

Xu calls this ratio the “call skew” and here’s the chart the bank sent clients Wednesday showing the metric at a record level.

The jump in the ratio of call-to-put buyers came ahead of the Trump administration’s afternoon announcement on a highly anticipated tax proposal.

Call skew began climbing after the November U.S. presidential election, and the last time call skew hit a record was Feb. 14, Xu said. The S&P 500 climbed about 3 percent in the following days before setting its most recent closing record on March 1.

Stocks and call skew levels then dropped as Republicans pulled their health-care bill, creating worries about whether market-friendly tax reform would be passed. Growing concerns about geopolitical tensions from North Korea to anti-EU sentiment in France also pressured stocks.

So far this week, the S&P 500 has rallied nearly 2 percent after the first round of a French presidential election on Sunday that showed centrist candidate Emmanuel Macron remaining the favorite against far-right populist candidate Marine Le Pen.

That said, stocks don’t have an all-clear signal. Congress has yet to vote on tax reform, while overseas surprises could rock markets again.

Xu also thinks the bullish bet from call options buyers is probably near its limit around these record levels.

“It’s pretty extreme as it is. In order for it to go higher we probably need something more concrete or substantial to extend that,” she said.

But that’s obviously not the whole Options story. S&P 500 is but one vehicle amongst a myriad of many such as commodities and metals with both Gold and Silver looking attractive right now. Oil – well, nah.

Cheerio.

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

Golden Book

Precious metals expert Mr. James Dines believes we’re on the verge of an historic rally in gold prices…

He’s also the author of the bestselling book Goldbug!, which is widely considered to be the “bible” of gold and silver investing.

In it, you’ll see why Mr. Dines thinks:

  • Gold is going to $5,000 an ounce
  • Silver is going to $300 an ounce
  • The shocking reason silver’s price could exceed the price of gold, which will happen near their final peaks

Cheerio

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