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Q+A-How much can S.Africa miners reap from weak rand?
September 27, 2011 / 12:25 PM / in 6 years

Q+A-How much can S.Africa miners reap from weak rand?

JOHANNESBURG, Sept 27 (Reuters) - South Africa’s rand has lost about 16 percent in September.

Miners in the world’s top platinum producer and fourth-biggest gold producer often benefit from a softer rand because it reduces their costs, though this has become less of a factor for gold miners as they spread their footprint elsewhere.

Here are some questions about the possible impact of rand weakness on South African gold and platinum miners:

IS THE DROP IN THE RAND A WINDFALL?

Not necessarily.

The same factors that have laid the rand low -- a stampede to cash amid the euro zone debt crisis and global recession fears -- have also driven down platinum and gold prices.

Spot platinum is down about 15 percent in the month to date, while gold has shed about the same since its record high of just over $1,920.00 an ounce on Sept. 6.

The rand is often a victim of its own success as one of the most liquid currencies in the emerging market basket. Investors can dump it with ease when risk aversion sets in.

The rand is also lumped with commodity currencies, and so it is highly sensitive to changes in the resource cycle. Bottom line: a softer rand can -- though this is not set in stone -- mean lower gold or platinum prices.

Rand weakness can also cancel out any benefits for South Africa from lower dollar prices for oil and diesel. Mine executives have complained that this year’s boom in global commodity prices, particularly fuel, has put cost pressures on their bottom lines.

WHO SHOULD BENEFIT MORE -- GOLD OR PLATINUM PRODUCERS?

Platinum producers should get the biggest lift because South Africa accounts for about 80 percent of global output, so geography keeps the bulk of their costs in rand.

South African platinum producers have underperformed their golden peers this month, however, in part because the poor outlook for the global economy could hurt demand for platinum, the key metal used in making exhaust-cutting catalytic converters in cars.

The rand has cushioned platinum producers to an extent from the fall in the price of platinum as the two have dropped mostly in tandem.

Anglo American Platinum , the world’s largest platinum producer that accounts for about 40 percent of global supply, has lost around 1.8 percent off its share price this month, compared with a 15 percent fall in platinum.

Impala Platinum , the world’s second-largest producer, has lost about 9 percent in the month to date.

WHAT HAS THE RAND GOLD PRICE DONE?

The rand/gold price hit an historic high of just over 14,800 rand an ounce on Sept. 21. In the month to date it is up 4 percent, according to Thomson Reuters’ data.

WHO HAS THE MOST RAND EXPOSURE AMONG GOLD PRODUCERS?

Harmony Gold , South Africa’s third-largest bullion producer, has by far the most exposure among the big players as over 90 percent of production comes from its home base.

Gold Fields , which ranks fourth in the world, gets about 50 percent of its output domestically, while AngloGold Ashanti , the world’s third-largest gold producer, only gets about 40 percent of its production from South Africa.

The latter two still can do well from a sharply weaker rand because of the scale of their operations in South Africa.

For AngloGold, 40 percent of its forecast output of 4.45 million ounces this year means close to 1.78 million ounces, compared with Harmony’s total production of close to 1.3 million.

Harmony has in fact underperformed its bigger domestic rivals this month. It has added around 5 percent in the month to date, while Gold Fields and AngloGold have both climbed over 12 percent. ($1 = 8.076 South African Rand) (Editing by Jane Baird)

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