Note: It is no exaggeration to say that London-based mining investment advisor Tony Mahalski is known in every mining jurisdiction in the world. We asked him to give us a perspective on the  troubled  South African mining sector - and this is what he sent us. It is personal and delightfully engaging, the view of a man who has obviously loved his career.

Denis Worrall

The Johannesburg Stock Exchange was for many years the centre of my business career. I had interviewed in London for a position on the London Stock Exchange floor as an "arbitrage dealer". I had little knowledge of what this entailed but with much excitement and enthusiasm I entered the world of gold and gold mining stocks. South Africa then was the largest producer of gold in the world.

The world of arbitrage was the skill of buying a stock in one country and selling it instantaneously in another, thereby gaining what was called "the margin", or not if you were slow or the competition ahead. It was true then but not now that  the South African mining companies were quoted in more bourses than any other tradable assets. You could buy or sell shares in France, UK, Belgium, Germany, Canada and the USA. Therefore these stocks, of which I think there were 32 gold counters, were the vehicle to move money around the world hopefully to make that small margin. The trick was to have the exchange rates at your fingertips – one small missed calculation would result in a loss.

In this period the yields from the equities was eye-watering. In domestic terms this could be 6-8% but for overseas investors through the "financial rand" this could double the yield. In addition there was the Eskom bond market which was huge to pension fund investors.

This happy state of affairs remained in place for many years and indeed I became fascinated with the history of South African mining and the wonderful characters of the past. One observation remains true today, as it was in the past; to be involved with mining and resources as a participant you have to have "a little colour" and all are optimists!

The next move in my career took me into South African mining sales. Now having moved from the "floor" to the office, my role was to talk to European institutions regaling the merits of mining investments. South Africa was still the main thrust of gold investments but close on the heels were the new comers Canada and Australia. Over this period there were many feasts and famines, and the gold price either declined or rose spectacularly. I remember well one fund manager during one of the feast periods calling me from his car on the way to work "Spend $20 million in the market". What on?, I replied, "Anything that moves" was the reply! Progressing my expertise I now became involved with corporate finance of mining companies. During this period South African mining companies were going through a period of consolidation and restructuring, with older mining houses such as General Mining, Anglo, Jonnies and Goldfields questioning their strategy. This also coincided with political change.

Quietly sitting in my office one day my colleague passed the phone to me and whispered "Mr Big". I grabbed the phone, "Hello how are things?". " I've got an order for you". "Yes sir how can I help?" "Go buy me nineteen million four hundred and thirty seven thousand shares in Consolidated Modderfontein". "Well, sir, that is a big order!" He replied "That is the whole company!"

Where are we now? As can be seen from the above there was a wonderful, colorful living to be made broking and financing South African mining companies. That would not be true today. Regrettably, international interest has a broader field of investment to look at and it is with deep regret that the South African sector has become a backwater in the global institutions. What can't be taken away is the friendships, comradery and fun of all those involved with resources. It is the best, drop dead best business in the world! 

By Tony Mahalski
Mahalski Partners
www.mahalskipartners.com

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