Modern Mining June 2023

rates. The South African reserve bank typically follows the Fed, or at least anticipates US rises and hikes the repo rate accordingly. But it is proving a very blunt instrument because its efficacy is thwarted by blunder after domestic blun der. Nonetheless, economists expect that the MPC will up it by another 50 basis points at its next meeting. All this is fine for the political elite in South Africa living the high life. News just in is that “United Manganese of Kalahari (UMK) is set to become an unbridled cash cow for the ANC, espe cially its funding front Chancellor House… Chancellor House’s indirect 22% share in the 2020 dividends would have amounted to R528 million.” This windfall cleared the company’s debt and enabled it to buy out another shareholder. UMK is 49% owned by “an opaque and shifting knot of companies in Cyprus and the Bahamas, which lead back to Russian oli garch Viktor Vekselberg, who has close ties to Russian president Vladimir Putin.” No surprises there, given Lady R shenanigans and every other apparent pandering to Russia. The EIU expects the Rand only to depreciate to R20.29:1US$ by the end of 2027 and stabilise at R17.28:1US$ by the end of 2023. At the time of writing (16 May 2023) it is sitting at R19.074:1US$. It is the Rand’s lowest level in 25 years. If commodity prices continue to decline, as they will in a reces sionary global context, South African mining is in real trouble. Imported machinery is already expensive, and declining production volumes will lead to lower sales figures, which will eventually wipe out profit ability that is currently a function of temporarily high commodity prices and a favourable exchange rate. 

Growth and Opportunity Act) is at risk – it is set to expire in 2025, and because it is a US law, the coun try may simply decide not to renew the agreements therein for South Africa. The American Chamber of Commerce in South Africa has noted that trade in goods between the two countries was worth US$13.2 billion in 2019. Trade in services was worth $4.6 billion in the same year. As Brooks Spector quipped: “By contrast, the numbers for Russian investment in South Africa and bilateral trade are close to rounding errors.” Third, the Reserve Bank keeps trying to put out the fires to the Rand by tightening monetary policy – the Monetary Policy Committee (MPC) is going to keep increasing interest rates until inflation is tamed. But this fire is unlikely to be tamed. Interest rates pour cold water on domestic demand by making savings more attractive while the price of goods and services goes up. But they also buoy the value of the Rand (all else being equal) because Treasury bond yields go up as they become relatively more attrac tive for global hot money chasing returns. However, when the state does business with Russia against all indications of sensibility, and fails to keep the lights on, there is no amount of interest rate hiking that will break through the clouds of inflation. All it does is squeeze the middle class so hard that many are left with no choice but to immigrate (if they can still afford to do so). Why? Because bond repayments on a R2 million home, which were R14 911 at inter est rates of 6.5% (during 2021), are now R20 985 (at an interest of 11.25%) in May 2023. Who can afford an extra R6 000 a month while food price inflation continues to skyrocket at rates far higher than official inflation figures suggest? And who can save in these circumstances? Because US inflation is still higher than the Fed’s target of 2%, they have probably not finished hiking

South African mining production is in the doldrums.

All this is fine for the political elite in South Africa living the high life. News just in is that “United Manganese of Kalahari (UMK) is set to become an unbridled cash cow for the ANC, especially its funding front Chancellor House…

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