Rand Tumbles as South Africa Seeks Higher Black Mine Ownership

JOHANNESBURG (Capital Markets in Africa) – The rand weakened the most in more than two months as South Africa said local mines should be at least 30 percent owned by black people in an effort to redress economic imbalances caused by the apartheid system.

The currency fell as much as 1.9 percent against the dollar, the most since March 28, to be the biggest decliner among 31 major and emerging-market currencies tracked by Bloomberg. The rand was 1.7 percent lower at 12.8438 by 11:51 a.m. in Johannesburg. Local mining stocks slumped, while benchmark government bond yields rose by the most in more than two months.

The new rules will deter investment and weigh on the rand at a time when the country’s economy is in recession, according to Nomura International Plc. The higher level of minimum black ownership would need to be achieved within 12 months, Mineral Resources Minister Museveni Zwane said Thursday, risking dilution of shareholding as companies are forced to sell stakes.

“They’re negative reforms,” said Peter Attard Montalto, a London-based economist at Nomura International, which forecasts the rand at 15.5 per dollar by year-end. “This will set the industry back. It will be negative for growth and investment in the industry. It will ultimately lead to outflows, both in a portfolio sense and in terms of foreign direct investment.”

Most mining companies had reached a threshold of 26 percent set by the existing rules, but many black investors have since sold out. The industry lobby group has said it’s willing to fight the government in court to get credit for the earlier deals, and warned a failure to recognize those transactions could kill investment in an industry also facing proposed changes to resources legislation, known as the MPRD.

Mining stocks were among the biggest decliners on the Johannesburg stock exchange. Sibanye Gold Ltd. fell as much as 7.1 percent, Anglo American Plc tumbled 5.6 percent, the most intraday in almost four months, while AngloGold Ashanti Ltd. dropped as much as 5.5 percent. The industrial metals index fell 4.3 percent to an eight-month low as the mining gauge retreated 3.2 percent. The broader benchmark was 0.6 percent lower, supported by stocks that benefit from rand weakness.

Yields Jump
South African bonds fell, with the yield on the benchmark government rand-denominated bond due December 2026 rising 11 basis points to 8.5 percent, the biggest jump since April 3.

Glencore Plc, Impala Platinum Holdings Ltd., South32 Ltd. and Kumba Iron Ore Ltd., which is majority owned by Anglo, would need to sell the biggest stakes if the new charter fails to give credit for previous deals, Avior Capital Markets (Pty) Ltd. said June 1. AngloGold and Sibanye, the country’s two biggest gold miners, may also be affected by the new rules.

The Chamber of Mines, the industry lobby group, earlier rejected an invitation to a last-minute meeting with the government on Thursday that would have started an hour before a media briefing on the new regulations in Pretoria, the capital.

The chamber “will not be co-opted into participating in an attempt by the department to provide any support into what we believe has been a flawed process,” it said in a statement. The ministry has “not seen fit” to engage properly with stakeholders about the content of the charter, it said.

The rand has gained this year, even against a backdrop of credit ratings downgrades from the three biggest ratings companies and political turmoil surrounding Jacob Zuma’s presidency, as investors sought higher yielding assets in emerging markets. Thursday’s market reaction suggests investors have been too sanguine about prospects for South Africa, Nomura’s Montalto said.

“It shows an ignoring of the risks in this kind of environment. Investors have been ignoring some of the specifics,” he said. “This is waking people up to fact that the reform agenda is not quite what it seems.”

Source: Bloomberg Business News