HardAssetsInvestor

Written by Amine Bouchentouf  |

September 05, 2012

The Commodity Investor: What The South African Mine Strikes Really Mean For Investors

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The tenuous situation in South Africa could have profound impact on the global mining industry and jeopardize mining companies futures.

The summer of 2012 has certainly been one of the bloodiest in South Africa’s recent mining history.

What initially started out as a garden-variety strike at some half a dozen mines with workers demanding higher wages turned into a deadly bloody battle that saw 44 striking miners shot dead and unions calling for the outright nationalization of mining assets across the country. The present state of affairs is tense right now, with many of the miners having been jailed and, some claim, tortured by state security forces.

At the heart of the problem is a glaring socioeconomic divide that many perceive to be grossly unfair; the strikers argue that the current system unjustly rewards private enterprise (i.e., mining companies) over the citizenry and general populace. Indeed, one of the main calls during the deadly strikes and protests is the nationalization of all mining assets in South Africa in order to benefit the government and its citizens. These developments need to be taken extremely seriously by investors around the world.

It’s too early to predict the outcome right now, but it’s clear there are some major losers.

The mining industry globally is responsible for generating more than $1 trillion in revenue, so what happens in South Africa may have repercussions around the world. The Commodity Investor would like to draw attention to two similar movements that have gripped the world in the last couple of years.

Citizens Of The World Uniting

The first such movement is the so-called Arab Spring, which saw citizens in several Middle Eastern and North African countries rebel against their leadership. The movement sparked a regional wildfire that eventually brought down decades-old leaders such as Egypt’s Hosni Mubarak and Libya’s Colonel Moammar Gadhafi. Several months later, we are still witnessing its impact, most notably in Syria, where President Bashar Al-Assad is leading an extremely violent crackdown of the protests gripping the country.

The second movement that is similar to the South African mining protests is “Occupy Wall Street.” Appalled with the growing income disparity and perceived preferential treatment that some financial institutions received during the 2008 and subsequent financial crisis, American protesters took to the streets demonstrating against the current state of affairs. The movement drew global media attention and eventually spread to financial capitals around the world, including London, Honk Kong and Sydney. Just like in South Africa, Occupy Wall Street pitted the state security apparatus against the citizenry. While the movement has calmed from its heydays of summer 2011, it is still a political and social force that is having a material impact on the financial services industry.

Spotlight On South Africa

Which brings us back to South Africa. South Africa is the Saudi Arabia of mining, with large deposits of platinum (80 percent of global production), gold, coal and even diamonds. Whatever happens in South Africa will most likely have immediate effect not only on neighboring countries in Africa, but also other key mining jurisdictions in Latin America, Southeast Asia and elsewhere. Therefore, the events in South Africa may very well determine the direction of the global mining industry for decades to come.