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South Africa's "Unlawful" Proposal to Freeze Mining Rights Hits Gold Stocks
Jul. 21, 2017 10:15AM PST
Precious Metals
A lobby group that supports mining companies in the country is calling for the proposal to be withdrawn, but some major gold miners still suffered.
South Africa plans to suspend the granting of applications for prospecting and mining rights pending a court case to review new mining laws, Mineral Resources Minister Mosebenzi Zwane said on Wednesday (July 19).
In response, the Chamber of Mines, which represents the country’s mining industry, said if Zwane doesn’t withdraw the proposed freeze it will seek a court order to suspend and review it.
The proposal is unlawful and would “have an immediate negative impact on investment in the sector,” the lobby group said in a statement released on Thursday (July 20). The country also plans to halt any renewals of prospecting and mining rights.
Last month, the South African government attempted to introduce new regulations to increase the minimum black ownership percentage for mines to 30 percent from 26 percent previously. The move was meant to ensure that more proceeds from the country’s natural resources flow to the black majority, Zwane said at the time.
But after the announcement, the country’s Chamber of Mines applied for an urgent high court injunction to prevent the implementation of the new rules, which were suspended last week. In return, the chamber agreed to the government’s request for more time to prepare its legal response in the case, moving the court hearing date from July to September.
Zwane now appears to be using the moratorium to circumvent the deal he made with the Chamber of Mines, said Peter Leon, the Africa co-chair at law firm Herbert Smith Freehills.
“It sends a terrible message,” he told Bloomberg on Thursday. “This is freezing all transactions and all applications indefinitely.”
South Africa holds the world’s biggest reserves of platinum, chrome and manganese, but the ongoing uncertainty surrounding policies has deterred investments. Last week, ratings agency Moody’s said the new rules aimed at accelerating black ownership in South Africa’s mining industry could raise costs and diminish cash flow generation.
The recent news hurt the share prices of some of the mining companies operating in the country. Sibanye Gold (JSE:SGL), South Africa’s largest gold producer, lost 1.61 percent on the back of the news. What’s more, the new regulations have put the company’s $2.2-billion acquisition of Stillwater Mining (NYSE:SWC) at risk; if it goes through it would be the biggest foreign takeover by a South African company in more than a decade.
Similarly, AngloGold Ashanti (JSE:ANG), the world’s third-biggest gold producer, saw its share price decrease by 0.91 percent. Diversified top gold producer Gold Fields (NYSE:GFI) remained almost neutral, down by only 0.13 percent.
Other companies were also hit by the news. Mining giant Glencore (LSE:GLEN), which has coal and ferroalloy operations in South Africa, incurred a share price drop of 0.76 percent. Anglo American (LSE:AAL), which mines diamonds, manganese, platinum, iron and coal in the country, saw its share price fall by 2.91 percent.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
