Photographer: Waldo Swiegers /Bloomberg

A 24% Gain for S. African Mining Stocks Has Nobody Cheering

  • Outlook still bleak after index posts best month in 17 years
  • February surge a `rally in a bear market,' Alliance says

A rally within a bear market: that’s how one investor describes the best month for South African mining shares in 17 years.

The 16-member FTSE JSE Mining Index surged 24 percent in February, the most since April 1999, as prices for raw materials including iron ore and platinum gained while the rand declined, boosting margins for South African miners, which pay costs in the local currency while reaping profits in dollars. The benchmark All Share Index rose 0.6 percent in the same period.

South African mining stocks, once the backbone of Africa’s biggest equities exchange, are rebounding from an 11-year low in January that reduced their share of the Top 40 Index to 6.3 percent, from 37 percent 10 years ago. While commodity prices have gained from a record low on Jan. 20, global growth prospects don’t warrant too much optimism yet, said Grant Cullens, chief executive of African Alliance, voted the best research house in Africa for three years running through 2014 in a survey by Euromoney magazine.

“We are not convinced that at this stage we are at the beginning of a new supercycle for commodities,” Cullens said by phone from Johannesburg. “We don’t believe that anything fundamental has changed which is going to make the sector particularly attractive over the next 12 to 18 months. This is a rally still in a bear market.”

Harmony Gold Mining Co., the country’s third-biggest producer of the metal, led gains in February, soaring 76 percent. Lonmin Plc, the world’s third-biggest platinum miner, advanced 70 percent after falling to a record low in January as it restructured mines and planned to raise $400 million from shareholders. Anglo American Plc climbed 65 percent after saying it plans to sell coal and iron ore mines to cut debt.

Bleak Prospects

Mining stocks are rebounding from oversold levels rather than gaining on long-term prospects, said Troye Brady, analyst at Noah Capital Markets Ltd. in Johannesburg. With the exception of gold, which has gained 16 percent this year as turmoil across equity and currency markets sparked demand for a haven, prospects for commodities remain bleak while economies from China to Europe show few signs of revival.

Mining stocks lost 35 percent in 2015, compared with the 5.4 percent return for the All Share Index. The mining gauge climbed 4.1 percent by 15:48 p.m. in Johannesburg on Tuesday, compared with the 1.9 percent gain in the benchmark measure.

“The resources index was very, very oversold,” Brady said. “I don’t think the bad news is out of the system yet. It does seem like a bit of a relief rally.”

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