SA miner profits hit by weak export market demand

The mining sector has been a focal point for investors this year, with the JSE's Resource 10 index outperforming the overall market by 12 per cent. However, recent challenges have dampened profits for many mining companies, as commodity prices have pulled back and South Africa grapples with rail and freight issues. Bruce Williamson, a Mining Analyst at Integral Asset Management, shared insights on the current state of the industry in a recent CNBC Africa interview. According to Williamson, while the sector may seem undervalued at present, a multitude of global factors, including geopolitical tensions, the green energy transition, and the ongoing COVID-19 pandemic, are creating a cloud of uncertainty. He emphasized that despite the potential for value, the timeline for recovery remains uncertain due to these complex challenges. Williamson highlighted the growing significance of the green energy transition and artificial intelligence (AI) in the mining sector, noting that for some companies, these trends present opportunities rather than obstacles. For instance, the Platinum Group Metals (PGMs) sector could see a resurgence as the market reaches a potential turning point, with a likely need for production cutbacks in the near future to balance supply and demand. Williamson expressed concerns about tepid demand and the hesitance of mining companies to reduce production due to the negative impacts on jobs and communities. In terms of investment prospects, Williamson pointed out that gold shares have been the standout performers this year, driven by a significant increase in the price of gold. South African gold companies such as Pan-African Harmony and Goldfields have capitalized on this trend, outperforming international giants like Newmont and Barrick. However, he cautioned that the rest of the sector has not fared as well, with heavyweight companies like BHP Billiton dragging down the index. When it comes to specific stocks, Williamson suggested that Anglo-American's turnaround story presents both opportunities and uncertainties. The company's restructuring efforts have been accelerated by external factors, including a recent bid from BHP. While Anglo-American is reshaping its portfolio and focusing on core assets like copper and iron ore, challenges like the sale of De Beers and operational disruptions remain unresolved. Williamson recommended caution for potential investors in the mining sector, advising to wait for clearer signals like production cutbacks before considering entry points. He highlighted a possible timeline for monitoring market conditions towards the end of quarter three and into quarter four to assess the sector's recovery potential. Overall, Williamson's assessment of the mining sector reflects a cautious optimism, acknowledging the value opportunities while remaining mindful of the prevailing uncertainties and challenges that could impact future performance.