Iron ore, gold surge propel South Africa miners to 11-year high

  • Weaker rand also boosts producers who sell metals for dollars
  • Recent gains have pushed the sector into overbought territory

The twin tailwinds of rallying iron-ore prices and gold’s haven appeal have driven South African mining stocks to an almost 11-year high.

Johannesburg’s FTSE/JSE Africa Mining Index gained as much as 2% Thursday to the highest since July 2008. Anglo American Plc, BHP Group Plc and AngloGold Ashanti Ltd. have contributed most to this year’s 28% advance for the sector. The rand’s 3.4% decline against the dollar in the past month has also boosted the outlook for local miners.

“We have seen a recovery in commodity prices, and that is positive for the share prices of mining companies, and the rand has also been weaker, which is helpful as the companies sell in dollars,” said Izak van Niekerk, a money manager at Mergence Investment Managers in Cape Town.

Iron-ore prices have risen 50% since January to the highest since 2014, after disruptions to supplies in top exporters Brazil, where a deadly tailings dam disaster harmed production, and Australia, where miners have contended with the effects of storm damage, ignited forecasts for a global deficit.

That should translate to stronger balance sheets, good cash flow and the prospect of improved dividends, Van Niekerk said. “The iron-ore price rally has also been an unexpected windfall for producers unaffected by the dam issues in Brazil.”


Meanwhile, gold has climbed as the case for a U.S. interest rate cut strengthens and an array of geopolitical risks threaten the world’s economies.

“Gold has moved quite a bit with some of the recent global events, and rising expectation of rate cuts rather than further tightening by the U.S. Fed,” Van Niekerk said.

To be sure, the rally may be close to running its course, at least one technical indicator suggests. The sector’s 14-day relative strength index has climbed to 76, above the level of 70 that suggests recent gains may be overdone.