Mining Stocks Rally in Johannesburg as Analysts Call for Caution

Updated on
  • Weak commodity fundamentals remain, Vunani Securities says
  • `The outlook is still uncertain': Momentum SP Reid Securities

South African mining stocks gained the most in more than seven years as a slump in the dollar made commodities priced in the U.S. currency more attractive to investors.

The rally may not last as fundamentals for producers, such as supply and demand and the cost of operations, haven’t yet shown signs of improvement, according to analysts at Vunani Securities Ltd. and Momentum SP Reid Securities Ltd. in Johannesburg.

“The most important driver at the moment is the dollar that’s slightly weaker and that has provided support to all commodity prices,” said Hurbey Geldenhuys, a mining analyst at Vunani Securities Ltd. “One should still be cautious. Many of the fundamentals haven’t shifted.”

The 16-member FTSE/JSE Africa Mining Index advanced 11 percent by the close in Johannesburg, the most since December 2008, and to the highest level since Nov. 16. Anglo American Platinum Ltd. led the gains, jumping 20 percent, the most on record. Exxaro Resources Ltd. and Impala Platinum Holdings Ltd. climbed 19 percent.

South Africa’s currency was 0.7 percent stronger against the U.S. dollar at 15.8195 at 5:24 p.m. in Johannesburg. The Bloomberg Commodity Index, which tracks the prices of a basket of minerals, climbed a second day, adding 0.6 percent. Gold for immediate delivery rose 0.9 percent to $1,152.36 an ounce while platinum gained 2.3 percent to $899.95 an ounce.

Harmony Gold Mining Co., the best-performing stock on Johannesburg’s benchmark index this year, gained 9.5 percent. The gold producer, which has more than doubled in 2016, said it’s seeking to make acquisitions and repay debt after a plunge in the rand bolstered profit margins in the second quarter. Gold priced in rand has climbed 18 percent since Dec. 1 and traded at 18,212 rand ($1,152) an ounce at 5:32 p.m. in Johannesburg.

Metals, and the companies that produce them, have slumped as a slowdown in China, the biggest consumer, led to oversupplies. The collapse in commodity prices has left many companies in the industry trading at all-time lows and with increased volatility.

“Your view on commodity prices is going to determine when you would begin piling into resources and right now the outlook is still uncertain,” Stephen Meintjes, head of research at Momentum SP Reid Securities, said by phone from Johannesburg. “It’s uncertain enough for caution to still be warranted.”

— With assistance by Andre Janse Van Vuuren

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