Could the extensive, multi-national South African mining industry face nationalization? Apparently, yes, if Julius Malema of the African National Congress (ANC) youth league had his way.
Exactly how big an "if" is this? Consider these facts reported by Mike Cohen of Bloomberg:
- Nationalization "is not government policy," according to President Jacob Zuma, Minister of Mines Susan Shabangu, and other senior cabinet members.
- Claude Baissac, founder of Eunomix, thinks the possibility of significant changes to the official ownership policies for mines is higher now than it has been since the end of apartheid.
- Baissac also believes the youth league is "an extremely powerful force" and calls Malema a "king-maker."
- According to Cohen, the youth league helped Zuma replace Thabo Mbeki at the helm of the ANC in 2007.
- Malema won a second term as the head of the youth league. He ran uncontested.
The ANC has been conducting studies into the viability of nationalization since last November. Baissac believes the findings will be the "key political issue" in the ANC's elections in December 2012.
Former president Nelson Mandela floated the idea of nationalization after his release from jail in 1990, although he rescinded his statements prior to his election in 1994. Since then, a law came into effect requiring mining companies to sell 26% of their local assets to black South Africans. The execution of this law was successfully overseen by the Mbeki administration (via Bloomberg).
Any new changes to the South African mining industry would likely have widespread effects.
"South Africa is the continent's largest producer of gold, supplies European and Indian power plants with coal, and depends on mining for half of exports. In April 2010, Citigroup valued the country's mineral resources at $2.5 trillion, the most of any nation," reports Cohen.
Many of the world's largest miners have significant operations in South Africa. In the event of nationalization, these companies could see drastic decreases to their proven and unproven mineral reserve figures.
To help you with your own research, we have compiled a list of mining companies with exposure to South Africa.
List sorted by market cap. (Click here to access free, interactive tools to analyze these ideas.)
1. Sterlite Industries (India)
3. AngloGold Ashanti
4. Gold Fields
5. Pioneer Natural Resources
6. Harmony Gold Mining
7. Great Basin Gold
8. Platinum Group Metals
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Andrew Dominguez does not own any of the shares mentioned above.