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ASX small cap miners in South Africa have performed 5 times better than the market this year

Stockhead logo Stockhead 18/04/2019 Nick Sundich
a group of people walking down the street: ASX small cap miners in South Africa have performed 5 times better than the market this year © Stockhead Australia ASX small cap miners in South Africa have performed 5 times better than the market this year

Despite a rally across global markets this year, ASX small cap mining stocks have lagged behind.

On average they are only up by 3.9 per cent this year. In contrast the broader ASX is up nearly 11 per cent and other markets, such as the US and China, are up by even more.

However, miners in one jurisdiction have stood out – South Africa. The 12 mining stocks based there are up 18.74 per cent this year, nearly five times better than the broader market.

Why?

On the face of it, it would seem they are following the rally locally listed mining stocks are having. Bloomberg reported on Wednesday that the FTSE/JSE Africa Mining Index is at an eight-year high and has gained 22 per cent this year.

However, some companies have risen off the back of good news. The best performing miner, base metal explorer Orion Minerals (ASX: ORN), is up 80 per cent this year. While they reported positive survey results in January, the spike began in February when they appointed a financial advisor for their project – Endeavour Financial.

They also welcomed a new institutional investor, the Anglo American Sefa Mining Fund (AASMF) and announced they are seeking to build a hybrid solar and wind power plant, with Juwi Renewable Energies.

Orion anticipate their Bankable Feasibility Study to be complete this quarter. They have also continued to surveying and have raised capital from local investors, Black Economic Empowerment.

However, others have risen off the back of a slower new flow and have even intrigued the ASX. While coal producer Resource Generation (ASX: RES) announced two weeks ago it received US$2.5m in working capital the only other news was financial reports.

The company copped a price query from the ASX in late March and it attributed its financial records to the spike, believing the market delayed in “digesting the information”.

Here is a table of ASX small caps with mining operations in South Africa

CodeNamePrice (18-April)Year to Date Return (%)Market Cap
ORNORION MINERALS0.03680$65.6M
RESRESOURCE GENERATION0.1353$75.6M
MGUMAGNUM MINING AND EXPLORATION0.0938$25.2M
TGMTHETA GOLD MINES0.10531$37.5M
JMSJUPITER MINES0.32530$636.7M
TNOTANDO RESOURCES0.130$19.5M
MCMMC MINING0.8116$114.1M
UNVUNIVERSAL COAL0.3614$195.9M
MRCMINERAL COMMODITIES0.18513$80.0M
AJCACACIA COAL0.0010$4.1M
AVLAUSTRALIAN VANADIUM0.020$39.5M
WWIWEST WITS MINING0.008-11$6.3M
IKWIKWEZI MINING0.001-50$4.1M

 

Will this run last?

This is a difficult question considering the uncertainty in South Africa’s mining industry and the broader economy.

The long term trajectory has been downwards; in 2017 South Africa spent US$317m less than in 2007 and employment is 56,000 lower than 10 years ago.

The gold industry in particular has been hard hit with production down 46 per cent in 10 years and Minerals Council research showing that last year 75 per cent of South African gold mines were unprofitable.

In the short term, there is concern about violent community activists in mining areas and next month’s election. One radical party, the Economic Freedom Fighters (EFF), have proposed nationalising all mines. Despite only forming in 2013, they got 6.4 per cent of the vote last elections – hardly a fringe party.

The recent case study of Tanzania, where investors of ASX small caps took several months to recover from their fears of radical changes to local mining laws, show legal problems are quick to frighten investors.

These risks have not been able to be swept under the carpet, even when company’s stories and business models are compelling.

Earlier this month, Hartleys put out a 44 cent price target on manganese miner Jupiter Mines (ASX: JMS), liking their production figures (0.8Mt) and cash balance (of $100 million). However they admitted, “the key risk is investor sentiment for South Africa”.

Ultimately, the fact that these stocks have still performed regardless of these issues is remarkable. But it may not continue if any possibilities of radical legal changes become reality.

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