Don’t bank on the ‘Ramaphosa rally’ lasting too long, warns BMI Research
The rand’s "Ramaphosa rally" is going to falter, and the South African currency will weaken back to about R14.80 to the dollar by 2019 — which is good news for SA’s gold miners, BMI Research said in a note e-mailed on Friday morning.
"While Cyril Ramaphosa’s election as new ANC leader on December 18 and as president of SA on February 15 gave the rand a further appreciatory boost, we expect this trend to be reversed in the coming months as attempts to implement reforms in the country stall and inherent weaknesses in the South African economy continue to weigh on the currency, while gold prices continue to head upwards ," BMI said.
"We expect Ramaphosa’s market-friendly reform agenda will likely be slowed, if not impeded, by strong opposition within the ANC, which will consequently sour investor sentiment towards the rand in the next six months."
Recent results from miners AngloGold Ashanti and Sibanye-Stillwater showed the benefit of a rally in the gold price had been outweighed by the rand strengthening. While South African gold miners were maintaining the volume of gold they produced, their profitability was increasingly squeezed by rising production costs.
"Despite a 5% rise in gold prices from November 2017 to February 2018, the value of gold in rand terms over the same period has decreased from R18,336/oz to R15,613/oz," the report said.
AngloGold reported its production costs rose 15% while Sibanye’s rose 21%.
"Similarly, Gold Fields’ all-in costs at the company’s South Deep operations rose from $1,006/oz in 2016 to $1,088/oz in 2017.
"These modest financial results come as gold production in SA remains steady, with 2017 output reaching 5.1-million tonnes, the same as in 2016, according to our estimates."
BMI said its country risk team did not expect Ramaphosa’s reform plan to succeed, and foreign investment was unlikely to pick up in any significant way, contributing to a depreciation from R11.67/$ currently to up to R14.80/$ by 2019.