Picture: THINKSTOCK
Picture: THINKSTOCK

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ROCKETING mining stocks on the JSE may be due for a correction, as the fundamentals supporting the rally are lagging. The JSE’s gold miners index has doubled so far this year, taking it far ahead of the spot gold price’s 18.7% rise since the start of the year. Harmony Gold has grown a phenomenal 231% since the beginning of the year.

"These mines are so marginal and geared. If the price goes in your favour, it is a multiple increase. Harmony was losing money, and now it is just a cash machine," Peter Major, fund manager at Cadiz Corporate Solutions told Reuters on Monday.

The spot platinum price is up 10.3% this year, but the platinum index has gained 99%, of which 35.7% was last week.

Previous laggard Lonmin has firmed 119% since the first trading day in January.

The rally in mining stocks has been boosted by the weaker rand, which benefits their export earnings, that are usually in dollars. Although the rand weakened 33% against the dollar last year, it has firmed 1% since the beginning of the year.

Analysts say the mining rally would have to be supported by economic realities for it to be more sustainable.

"I suspect that the commodities recovery seen recently may turn back to a story of supply and demand," Vestact analyst Sasha Naryshkine said.

He said while the gold index had doubled since the beginning of the year, the index was down 13% over 10 years, and down 19% over five years.

Platinum shares have lagged gold shares up to now, but are clearly playing catch-up. "The painful choices that platinum producers are making now may well yield positive results in the future," Mr Naryshkine said.

The platinum index was a strong performer on Monday, with gold shares taking a breather. The gold index ended the day 3.41% down, but platinum gained 9.37%.

Global mining stocks have benefited less than gold and platinum stocks, as the resources index had climbed a relatively pedestrian 24% this year.

But some individual shares have risen considerably.

Anglo American has recovered 90% this year on the group’s restructuring plans, driven by CEO Mark Cutifani.

Glencore has gained 67.5% this year, but BHP Billiton is up only 10%.

Gold shares have been firming in risk-on trade since further interest rate increases in the US have became less likely on low-inflation concerns. Fears over rising debt in China have positioned gold, together with US Treasuries, as renewed safe-haven investments.

"This strong rally in risk appetite remains intact, and the gold price had managed to sustain its stay above $1,225/oz for now, after peaking at around $1,279/oz," Nedbank CIB strategic research head Mohammed Nalla said.

The firmer trend in gold and platinum shares is also partly driven by the higher oil price.

The Brent crude price is up 3.5% so far this year, after losing 34% last year. In the late afternoon yesterday, Brent was 1.98% firmer, at $39.68 a barrel.