CAPE TOWN (miningweekly.com) – The South African gold mining industry faces uncertainty this year, as a combination of risks of further strikes and regulatory challenges loom, according to the just-released JP Morgan report on the gold industry.

“The risks of further industrial unrest and regulatory challenges in South Africa persist,” cautioned the report compiled by a JP Morgan Precious Metals team comprising Allan Cooke, Steve Sheperd and Abhishek Tiwari.

The team said this year marked a decade-old deadline for South African miners to comply with the requirements of the Mining Charter.

“While local gold miners maintain they have complied with its provisions – all are in possession of new-order mining rights – the Minister didn’t agree at all back in 2010, when the Department of Mineral Resources audited their respective scorecards for the five-year deadline in 2009.”

Another challenge looming over the mining industry was a potentially higher mining tax, which the Davis Tax Committee may recommend.

The team said amendments to the Mine Health and Safety Act, which proposed punitive measures for safety and health transgressions, could also have an impact on the industry.

“A period of high regulatory uncertainty lies ahead,” believed the team. 

“Threats to security of tenure, of higher taxation and, perhaps, more punitive measures to enforce safety and health standards, make for a long list of challenges for mining executives to contend with. And these issues may come to a head during a crisis period for the industry, certainly from a labour relations perspective,” warned the report. 

However, it said past experience had shown that although this was unsettling from an investment perspective, the final outcome had proved to be palatable for investors in previous years, during the time of the Mining Charter and Royalty Bill.

“In the current difficult business environment, we’re sure that management and shareholders would welcome greater certainty with respect to the South African mining regime. Perhaps, thereafter, industry stakeholders can begin to address the all-important task of reversing declining productivity that is slowly, but surely, eroding the mining industry,” the team said.

While highlighting risk, the JP Morgan report hinted that mining executives may be able to ride out the tough times. 

“While we highlight areas of potential risk and uncertainty, we acknowledge that many of these issues are not new ones for the gold miners. As such, these must be factored by the market to some extent.”

The report anticipated that rising inflation would support improved gold demand in Asia and a modest rise in price, with JP Morgan forecasting that gold would average $1 263/oz in 2014.

“With a weaker rand, [the] South African gold share ratings are undemanding on our numbers after a brutal sell-off in 2013,” the report said.

JP Morgan expected gold to trade broadly sideways over the next two years, with its long-term price assumption now set at $1 400/oz.

The report said a weaker rand was expected to offset the lower gold price.

“We see the rand gold price well supported at R430 000/kg.

“Gold shares appear oversold, on our numbers,” the report added.