South African regulators unveiled a new mining charter to force companies to give more ownership to black shareholders, sparking a selloff across the industry.

Anglo American Plc and Sibanye Gold Ltd. shares tumbled after the Department of Mineral Resources introduced requirements that local companies must ensure 30 percent of their shareholders are black, up from a previous level of 26 percent. Several of South Africa’s biggest mining companies may have to sell new stakes, raising the risk of dilution for existing owners.

The new rules “could pull the rug right from under the industry’s feet,” said Andy Pfaff, chief investment officer of Vanguard Derivatives, a South Africa-based broker. “It’s certainly not going to help with attracting foreign investment into South Africa.”

 

Eoin Treacy's view

Jacob Zuma’s government has been under pressure with a slew of corruption allegations and the firing of his finance minister. Introducing another mining charter which gives greater ownership rights to the people who vote is a populist move no doubt aimed at shoring up support. 

The Johannesburg All Share Index pulled back from the upper side of a more than two-year range three weeks ago. Despite a short-term oversold condition a clear upward dynamic will be required to confirm support at the lower side of the lengthy congestion area. 

The Rand has strengthened considerably over the last 18 months but has paused near ZAR12. A break in the medium-term progression of lower rally highs would signal a return to Dollar dominance. 

The iShares MSCI South Africa ETF which takes the Rand’s volatility into account has encountered resistance in the region of the lower side of the overhead trading range. It will need to find support in the region of the trend mean if potential of higher to lateral ranging is to be given the benefit of the doubt.