Record bullion prices give South African gold miners a lifeline, but risks remain

Soaring gold prices are helping mining companies to cut debt with many seeing a jump in revenues and healthy dividends on the horizon. (AFP)
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Updated 08 August 2020

Record bullion prices give South African gold miners a lifeline, but risks remain

  • While power cuts and regulatory uncertainty have always hung over operations, the mining sector is also battling rising COVID-19 cases in underground mines where social distancing is a challenge

JOHANNESBURG: South African gold miners are looking to cut debt and boost dividends as bullion hits record highs, with analysts and fund managers predicting a sectoral growth spurt over the next two years amid rising investor interest.
Shunned by investors due to mines that are old, deep, and difficult to extract, the country’s gold miners have traded at a discount to their global peers for years.
Higher prices, as spot gold roared past $2,000 an ounce for the first time, coupled with a weaker rand currency, comes as a lifeline.
Interviews with executives, analysts and fund managers show that higher gold prices could see some local miners bring their net debt to zero and pay healthy dividends over the next 24 months.
“Gold mining companies will spew a lot of cash in the next 12 months,” said Franco Lorenzani, an independent mining analyst.
Sibanye Stillwater, which has battled high debt, said it achieved its leverage target in the first quarter, ahead of plan.
Its net debt, which stood at 20.964 billion rand ($1.2 billion) in 2019, dropped 40 percent year-on-year in the first quarter.
Higher prices have also made more marginal ounces profitable for Sibanye, spokesman James Wellsted told Reuters, adding the company was looking at other ways to benefit from favorable market conditions.
“Maybe mining secondary reefs might be viable at these prices,” said Wellsted.
Pan African Resources is hoping to be net debt free by June 2021 and plans to increase its dividend payout to 5 percent from 1 percent last year, its head of investor relations Hethen Hira said. Its net debt dropped 49 percent to $62.5 million at end December.
Gold Fields has flagged hefty gains from the gold rally, with half-year profits up more than 300 percent.
Rene Heichreiter of Noah Capital said he was advising his clients to continue to invest in local gold miners, predicting a exponential jump in revenues in the coming months.
Some investors have already turned bullish.
Factsheets of fund managers seen by Reuters show South Africa’s Fairtree increased its exposure to Harmony Gold by 0.78 percent between March and June, while US-based ASA, which invests in gold mining companies globally, increased its investments in South Africa to 10.7 percent in June from 9.9 percent in January.
But the operating environment remains risky.
While power cuts and regulatory uncertainty have always hung over operations, the mining sector is also battling rising COVID-19 cases in underground mines where social distancing is a challenge.
This could threaten output, as some analysts warn the frenzy over high prices could backfire as investments add to costs.
“Whenever the gold prices go up the costs tend to go up with it,” said Nedbank mining analyst Arnold Van Graan.


Bailout will keep Air France-KLM afloat for less than year: CEO

Updated 21 September 2020

Bailout will keep Air France-KLM afloat for less than year: CEO

  • ‘If we base it upon the past few weeks, it is clear that the recovery in traffic will be slower than expected’
  • Governments are coming under pressure to tie airline bailouts to environmental commitments

PARIS: Bailouts provided to Air France-KLM by the French and Dutch governments will keep the airline flying less than a year, its CEO Benjamin Smith said Monday and evoked the possibility of injecting new capital.
In an interview with the French daily l’Opinion, Smith also warned that calls for airlines to contribute more to fight climate change could be catastrophic for their survival which is already under threat due to the coronavirus pandemic.
When countries imposed lockdowns earlier this year to stem the spread of the coronavirus airlines faced steep drops in revenue that have claimed several carriers.
A number of countries stepped in with support, including France which provided $8.2 billion to Air France and the Netherlands which received a $2.9 billion package.
“This support will permit us to hold on less than 12 months,” said Smith.
The reason is that air traffic is picking up very slowly as many northern hemisphere countries are now fearing a second wave of infections.
“If we base it upon the past few weeks, it is clear that the recovery in traffic will be slower than expected,” according to Smith, who said when the bailout was put together the airline was expecting a return to 2019 levels only in 2024.
Smith said discussions were already underway with shareholders on shoring up the airline group, and steps would be taken before the next regular annual meeting in the second quarter of next year.
“One, three or five billion euros? It is too early to put a figure on a possible recapitalization,” he said.
The airline group had $12.12 billion in cash or available under credit lines.
Major shareholders include the French government with a 14.3 percent stake, the Dutch government at 14 percent, as well as Delta and China Eastern airlines which each hold an 8 percent stake.
Governments are coming under pressure to tie airline bailouts to environmental commitments.
One proposal that has come from a citizen’s convention convoked by President Emmanuel Macron would cost airlines an estimated $3.6 billion.
Smith said the imposition of environmental charges on the industry would be “irresponsible and catastrophic” for Air France-KLM.