SA mines drop off international investment radar
Investors prefer jurisdictions such as Peru and Chile where there is more policy certainty
SA does not feature on the international investment radar as global mining grapples to regain investor trust as a good place to earn returns, says Jim Rutherford, a non-executive director at Anglo American.
In a typically blunt assessment of SA’s desirability as an investment destination for resources funds, Rutherford — a former long-time fund manager at Capital Group, a US-based company with more than $1.7-trillion under management — said the country has dropped off the radar, particularly as Peru and Chile show the regulatory and policy certainty that underpins investor confidence and that companies could make sustainable profits there.
“International mining equity investors have largely given up on direct exposure to South African mining. They get their exposure through Glencore, Anglo American and South32. The reasons you constantly hear is that they find the place too complicated, they don’t see an environment conducive to making returns, and they see better opportunities elsewhere,” he said, adding that many of SA’s listed companies are too small for international investors.
Looking at the performance of six of the major specialist mining funds over the past five years, Rutherford noted that all but one had posted negative annualised returns of 5% a year, under-performing the average market by 15 percentage points.
“In the investment world, by any standards, that’s a massive gap,” Rutherford said at the Joburg Indaba mining conference.
For SA and its mining companies, the picture in relation to these six specialist funds is grim. “Frankly, SA doesn’t fit in,” Rutherford said. “With one sole exception, these funds do not own a single SA-listed company. If you look at other smaller mining funds you’d pretty much see the same picture across the board.”
Drawing on data over the past 15 years, he showed how SA’s share of global capital expenditure had fallen to 3% in 2013 to 2017, from 9% in the five years to 2007.
Chile and Peru have strongly grown their share of global expenditure. Chile, which was on 9% at the same time as SA, has now shot up to 12% as SA fell into eighth place in world capital expenditure rankings, despite its treasure trove of minerals, including platinum group metals, chrome, manganese, coal, iron ore, gold and diamonds.
Against its mining peers, Australia, Canada, Peru and Chile, SA has fared particularly badly in three most recent competitiveness surveys by the Fraser Institute, the World Economic Forum and the World Bank, Rutherford said. “When you dissect the findings, the area where SA consistently scores poorly is on the perception of and uncertainties around government policy.”
Using the measurements of mining output and employment over the past 10 years, SA, unlike its four peers, showed falling production and employment. While in Australia, Canada, Peru and Chile there was close correlation in the Fraser Institute’s survey of investor perceptions of policy and mining potential if regulations were world class, SA showed a glaring gap between the two.
Ranking SA on the attractiveness of its mining policies, it ranked a dismal 81 out of 91 mining jurisdictions, behind Tanzania, Mozambique and Zambia. But, if its policies were more friendly, it would rank 21st.
“Within an industry that is trying to define the value equation and remain relevant, SA faces its own challenges. Investors have been put off both by lack of clarity and uncertainty around policy and, dare I say it, let us not forget the poor performance on delivery by several companies,” Rutherford said.
However, the release of the Mining Charter on September 27, and the high level of engagement by mineral resources minister Gwede Mantashe with the industry to draw it up, has sent a positive message, he said.
“But, the devil is in the detail and there are a number of areas where the charter is either ambiguous or unhelpful and is rightly being questioned,” he said. “After all, it is investment — rather than ideology — that creates jobs. And investment follows only where it sees the prospect of returns, not the other way round.”