Strong Rand Spoiling the Gold Rally for South African Mines – by Felix Njini (Bloomberg News – January 25, 2018)

(Bloomberg) — For South African gold miners, it’s both the best and worst of times. The metal started the year with a bang, rising more than 4 percent to the highest since August 2016.

But an equally impressive rally in the rand means that South Africa-focused producers are likely to miss out on the party.

Because mining companies pay most of their expenses in local currency, a stronger rand squeezes profit margins and can render some operations unprofitable. Many of South Africa’s gold mines date back to the 1950s and 1960s and much of the easily accessible metal has been exhausted, while labor-intensive mining methods compound the effect of currency moves.

“With the rand below 12 to the dollar, margin pressure is definitely building up,” Carsten Menke, an analyst at Bank Julius Baer & Co., said by phone. “Rand strength is the flip side of an improving economy, but it’s causing headwinds to miners because of costs going up — they are not enjoying the tailwinds from rising gold prices.”

Gold for immediate delivery was little changed at $1,357.96 an ounce at 8:31 a.m. in London, according to Bloomberg generic pricing.

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