The JSE closed significantly lower on Thursday ahead of the long weekend. Losses were spread across the sectors, with a stronger dollar and weaker gold and platinum prices.
Mining stocks felt the pain following the public release of a redrafted mining charter. The charter institutes new requirements, increasing permanent black ownership targets to 30% with previous empowerment not recognised.
Mining companies will be forced to pay 1% of their annual turnover towards the 30% BEE partner and community programs prior to any distributions to shareholders. The document also stipulates that miners will be forced to source most goods and services from black owned businesses.
Investors responded in a knee-jerk fashion to the headlines, and the initial reactions saw indiscriminate selling of mining stocks across the board. The gold index collapsed 4.93%, and the resources index retreated 2.05%
The JSE All Share Index fell 1.28%, followed by the blue-chip Top 40 which dropped 1.27%. All major sectors closed in the red, with Financials 1.17% and industrials 0.96% down respectively. The overall index remains marginally positive for the year, with a gain of 0.35% over the last 6 months.
The Chamber of Mines, which represents mining companies in South Africa, will understandably, seek to stop the new Mining Charter, which it says is unfair and will hurt investment. If such an act is passed it could be the final nail in the coffin for an industry already on its knees.
Mining stocks with majority exposure to South African assets are expected to be the worst hit, as well as those with long-term interests in the country. Mining houses with operations that are close to maturity would be able to moth-ball activities and cut their losses in the short term.
The US Federal Open Market Committee increased interest rates by 0.25% on Wednesday, despite softer inflation figures. The rate hike resulted in a firmer dollar, with a hawkish outlook at raising rates again within the year.
The dollar firmed on the news, and commodity prices slipped with gold closing lower at $1253/Oz and $921/Oz for Platinum.
The Bank of England held rates unchanged in the UK on Thursday, resulting in the British pound firming against major currencies. The UK markets slipped by 0.74%
Brent crude slipped 0.13% to $46.94/bbl as the news that supply from non-OPEC producers is set to overwhelm the cuts enforced on OPEC members. A weekly report from the Energy Information Administration on Wednesday showed U.S. crude inventories fell less than expected while gasoline stockpiles unexpectedly swelled in the week ended May 2.