The effects of the new S. African mining law
We've received several e-mails expressing concern over the passage of a
new law in South Africa that aims at transforming the country's mining
industry by giving the government control of mineral rights.
The following letter from one of our subscribers aptly sums up the recent
concern among investors in the South African mining share market: "I just
read that there is a new law just passed that socializes the mining industry
in South Africa. Previously mineral rights were privately owned, now they
will be owned by the government, licenses will have to be obtained. South
Africa's Mineral and Energy Minister said the law was aimed at allowing good
quality ore currently in the hands of big mining houses to pass into black
hands. How will this affect the ownership of these South African mining
stocks in your opinion?"
First, a little background on this important issue is necessary. Under
the new legislation that was passed on Tuesday, June 25, by South Africa's
parliament, mining companies will be able to dig only under government
license. The legislation brings South Africa's mining industry in line with
the laws of other major mining nations such as Australia and Canada, and
therefore is not the big earth-shattering developing that some investors
think it is.
Another point worth considering is that the South African gold share
market in general has already taken this into account and knows in advance
what the outcome will be! This is because the "insiders" always know the
inside score on important issues like this well in advance of the public.
Rest assured that the South African government will not take liberties with
the country's largest gold, platinum and chromium producers without
consulting with its bread-and-butter in the form of companies like Durban
Deep, Harmony, and Gold Fields.
If anything, this new law merely strengthens the monopoly of a few mining
concerns and keeps out unwanted competition in the form of start-up ventures since prospective mining companies must now seek government permission to mine in South Africa. Perhaps we are being cynical, but we can't help believing that whatever happens will come out to the advantage of DROOY the company and not to the South African people who supposedly would benefit by such a change. All we can really do is watch the tape and chart and let them guide us through. If something drastically terrible were going to happen to the South African gold mining stocks it would have already manifested itself in the charts.
A case could easily be made that the new S.A. mineral nationalization law
could actually work to the benefit of gold stock prices since investors are
deeply concerned over this issue, which is to say that the S.A. mining share
market will be climbing the proverbial "wall of worry" in upcoming months.
And we all know that the "worry wall" is typically a bullish one.
Confirming this viewpoint, Charles de Vaulx, co-manager of First Eagle
SoGen Gold Fund, also doesn't believe the new law will affect the prices of
South African mining stocks to any noticeable extent. His fund is up 88%
over the 15 months ending in March.
Currently, de Vaulx favors the large South African mining companies.
Concerns about political risk and the new mining law have driven shares
lower. So he's buying. He adds that large producers, such as Gold Fields
Limited and Harmony Gold, benefit from the rand, South Africa's weak
currency.
Another point worth considering is that the charts of the leading South
African gold mines tell a tell of a continued upward trend since the uptrend
line that exist in most of these leading golds since January is still intact.
Stocks like Gold Fields, Harmony, Rand Gold, Anglo Gold, ASA, and Golden
Star all share this common outlook of having unbroken interim uptrends. The passage of the landmark legislation has done nothing to change this, and
remember, the insiders ALWAYS know in advance what the outcome will be.
That's why charts have predictive power and can be used to forecast price
trends since the chart is nothing more than a distillation of ALL known
fundamentals as well as future expectations. And the charts for the S.A.
golds do not expect devastation of their industries anytime soon as is
evident in the charts.
The bottom line is that the passage of the mineral rights bill is nothing for investors in S.A. gold mining shares to be alarmed over. If it were, the
market would have blown the whistle long before its passage.
Clif Droke
June 27, 2002
Clif Droke is the editor of the weekly Bear Market Report, a combined
forecast and analysis of U.S. stocks and indices and international precious
metals stocks, and is the author of numerous books on finance and investing,
including "How to Trade & Invest in Gold & Gold Stocks." For a FREE COPY of the Bear Market Report send e-mail to: clif@clifdroke.com or write: The Bear Market Report, Clif Droke, P.O. Box 3401, Topsail Beach, N.C. 28445-9831. Visit his new web site at www.clifdroke.com
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