South African Mining Stocks Crash To 5-Year Low Valuations After Policy Shock

South Africa’s new mining charter (that all local mines should be 30% black-owned) is scaring away investors.

The charter revision comes shortly after Africa’s most industrialised economy entered its first recession since 2009, with investor confidence already shaken by infighting within the ANC over the scandal-hit presidency of Jacob Zuma.


The proposal was unveiled by the Department of Mineral Resources which said it intends to raise the minimum black-ownership level from the current 26% to ensure more proceeds from the country’s natural resources flow to the black majority, Mining Minister Mosebenzi Zwane told reporters on Thursday in Pretoria. The charter will also require companies to pay 1% of annual revenue to communities and new prospecting rights will require black control, Zwane said.


“The mining sector does not exist in a vacuum,” Zwane said as he unveiled the charter on Thursday. South African miners needed “strong legislative regimes” to thrive, he added.


“We have listened to miners who have not seen real economic benefit; people who don’t see benefit of transformation structures,” he said.

And the reaction is clear, as Bloomberg notes, the average price-to-earnings ratio of the country’s miners has fallen to the lowest level in five years...


As HSBC says mining stocks will become “non-investable” if the new regulations are implemented in the current form.

As the FT adds, President Zuma has called for “radical economic transformation” to more fairly share the benefits of South Africa’s economy among the black majority. Zwane, a close ally of embattled president Zuma, said the government was “not blind” to the downturn but added that “there’s a need to produce a new era of industrialisation driven by young economic champions,” referring to the charter as a “revolutionary tool”.

Miners who rely on international supply chains to operate in South Africa may be hard hit by rules that require companies to procure 80 per cent of services and 70 per cent of goods from black-owned local suppliers.


In addition, the holder of a South African mining right will be forced to pay 1 per cent of its annual turnover to communities.

Confirming that this is the latest disastrous populist policy adopted by South Africa, the rand has promptly tumbled on the news...