Investment Contrarians

South African Gold Mining Stocks Sell Off Amid More Worker Violence

By for Investment Contrarians |

South African Gold Mining Stocks Sell Off Amid More Worker ViolenceInvesting in gold mining stocks is risky to begin with, but labor unrest is a growing problem in certain parts of the world. With gold prices continuing their move up, mining stocks in unstable parts of the world have now additional problems of workers demanding a larger share of the profits. In particular, worker unrest appears to be spreading in South Africa, on the heels of the recent deaths of 44 people at a platinum mine owned and operated by Lonmin Plc (LSE/LMI).

The latest incident occurred with a gold mine owned and operated by Gold One International Limited (ASX/GDO). The gold mine just outside of Johannesburg erupted in violence as security forces opened fire with rubber bullets into an armed, protesting crowd.

Workers are increasingly engaging in illegal strikes, demanding better pay despite existing labor agreements. Mining stocks are getting hit, as investors are increasingly looking to sell first and ask questions later. This type of violence might only be the tipping point, and we could see more sentiment moving against mining stocks in South Africa, whether investors are involved in gold or other commodities.

With protesters attacking a bus carrying workers to the mine site, security forces fired tear gas and rubber bullets to hold off the attackers. As of last check, there have been no fatalities in this incident. The real fear among investors and executives is if gold mining stocks will be pushed out for more state-owned businesses.

A statement from the South African minister of mineral resources, Susan Shabangu, was certainly not comforting, as she called on greater scrutiny for mining stocks and reported that the government is planning to have state-owned firms more involved in the sector.

Is this a signal that South Africa is leaning towards more government intervention or even the nationalization of gold and other commodity properties? That would obviously be devastating to gold mining stocks operating in South Africa. A lot of this turmoil is being led by expelled African National Congress (ANC) Youth League leader Julius Malema. With an ANC conference scheduled for December, it’s my opinion that Malema is using and encouraging riots to boost his support in a political battle against President Jacob Zuma.

Be forewarned: if Malema gains support, this could mean a radical shift for South Africa and gold mining stocks in that region. Malema has repeatedly called for the nationalization of gold mines and the seizure of white-owned farms. He’s dangerous not only because of his communist idealism, but also his violent views on race. For example, he made headlines back in 2010 for singing the banned song that’s about shooting the white farmer.

hmy stock market chart

Chart courtesy of www.StockCharts.com.

 Harmony Gold Mining Company Limited (NYSE/HMY) has been hurt along with other mining stocks by the growing labor unrest in South Africa. A perfectly good company is unfairly caught in the crossfire of an increasingly unstable country. It’s unfortunate, because South Africa has been one of the more stable countries on the continent; this appears to be changing now. I would stay clear of South African gold mining stocks until more information is known about this labor unrest and the President proves he can maintain his hold on the country.

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