With global growth muted at best, resource prices down and unions piling on the pressure to increase wages at above inflation levels, it has not been a good year for the resource sector. Year to date the sector is down over 10% and valuations are historically cheap – some with good reason.
Lonmin has been the company on South Africans lips for all the wrong reasons over the past month but their troubles certainly did not start there. During May the share lost 30% of its value. This was due in most part to the fall in the spot platinum price. The graph below indicates the spot price of platinum over the last 12 months.
Notable from the graph is the recent spike in the price of platinum. This is in large part attributable to the recent unrest at the Marikana mine which threatens to spread across the mining sector. With analysts expecting that platinum supply will be constrained owing to the loss of production and the threat that further action by mine-workers could exacerbate the effect on production, the price of platinum has rebounded significantly.
The question we have to ask now is how the plunge in the Lonmin share price has affected our clients. The simple answer is… not much. While a number of unit trust funds hold Lonmin, those that our clients are invested in have exposures ranging between 0 – 1%. The fact is that the current share price will attract the interest of value investors and even more so if there are signs that the strike troubles can be resolved and the Marikana mine can return to production.
While the events at the Marikana mine were tragic, and could still have far reaching effects due to negative international sentiment towards investing in the South African mining sector, we are happy that our clients’ capital has not suffered.
