DAVID SHAPIRO: The perfect, unfolding storm that cut Anglo to size

I recall standing next to my father on the floor of the JSE in Hollard Street, shortly after I joined in 1972, examining the gold boards, which, at the time, dominated trading on the market. My father turned to me, shook his head and then thoughtfully warned that in 30 years all these names will have vanished.

His experience and understanding of the industry sent a shiver down my spine. I couldn’t imagine the JSE without East Driefontein, Kloof, Vaal Reefs and many other noble names that we bought and sold daily on behalf of private clients, institutions and our counterparts in London, Paris, Zurich and New York. Each mine was an ecosystem, not only supporting the operation’s extensive workforce but also the nearby concession store, clinic, school, garage and country club. The gold mining industry was the lifeblood of our economy and the driving force behind the JSE’s international success.

For a young man in his early twenties, three decades was a long way down the road, and, despite my father’s ominous forecast, I was certain that the development of new, innovative industries and mines would fill the void left by the decline of the country’s most important productive resource.

Yet, reflecting back  50 years, the country and the JSE have not come close to recapturing the grandeur and riches that came with being revered as the world’s largest gold producer. Nor have those ancillary businesses that serviced and maintained those vital assets been replaced.

In the mid-1990s, the prospect of rekindling a measure of our former glory arose with China’s hasty move to industrialise and urbanise its economy. The rapid construction of roads, bridges, factories and apartment blocks fuelled a frantic demand for shiploads of iron ore, copper and aluminium. Copper rose from $2,000 a tonne in the 1990s to $9,000 in 2008. Aluminium and iron ore prices trebled. Oil and coal benefited from the nation’s elevated consumption of energy, while platinum shot up to $2,250/oz with the Chinese population’s dash to buy motor vehicles.

This time, though, platinum apart, the mining industry couldn’t fall back on its unique geology and faced intense rivalry from other producers in South America, Australia and several neighbours north of our border in a stampede to satisfy China’s hunger for bulk metals.

When China’s demand for materials began moderating after the 2008 global financial crisis, shifting instead to a consumption-led strategy, commodity prices retreated rapidly. The deceleration left SA with little to show in terms of growth and investment. Policy uncertainty, complex transformation regulations, sluggish growth rates, decaying infrastructure, high levels of crime and corruption, and harsh labour practices had deterred investors seeking a stable commercial environment with a guaranteed protection of property rights.

These weren’t the only challenges SA firms faced. The collapse of the Soviet Union in 1990 had a profound effect on the commodity sector. The opening of Russia’s vast natural resources reshaped the dynamics significantly. Anglo American, whose revenues from its gold mines were fading, found its subsidiary De Beers’ effective control over world diamond supply (through the Central Selling Organisation) threatened by Russia’s huge reserves and moves to sell its diamonds independently.

SA’s new democratic government’s decision to begin easing its predecessor’s harsh exchange control policies in the nineties allowed Anglo to move its headquarters to London and compete on the world stage, but not before unbundling sizeable non-mining assets it had accumulated over decades.

It’s been a difficult  20-plus years for the once mighty organisation. Anglo has battled to keep up with the competition and today trades at values far below producers such as BHP, Glencore and Rio Tinto. Its future now lies in the balance as stronger competition bids for its assets.

For veterans like me it’s a sad reminder of who we once were. Just like the vanishing mine gear on the East Rand, gone forever are those days when being invited to a lunch at 44 Main Street was akin to an audience with royalty at Buckingham Palace.

• Shapiro is chief global equity strategist at Sasfin Wealth.