South Africa was first downgraded to junk status by S&P and Fitch in April. On June 9, Moody’s downgraded it as well — the sovereign is teetering just inside investment grade at Baa3.
Later that month, South Africa's mining minister Mosebenzi Zwane announced plans to raise the minimum level of black ownership of South African mines from 26% to 30%.
But on July 14, less than a month after it was introduced, the South African government suspended the charter while the Chamber of Mines, which represents the mining companies, seeks to stop the rules being implemented.
Analysts felt that this could further dampen investor sentiment for the country.
“The charter may weaken business and investor sentiment in other sectors by raising fears of more onerous policies,” said a report by Fitch in June on the new mining rules. “Business confidence in the second quarter fell to the lowest level since the financial crisis, likely weakened by political developments.”
GlobalCapital spoke to a mining company in Johannesburg in July and it agreed that the new rules would put off miners from investing and issuing debt.
“The uncertainty of the mining charter is something that boards and executives are very aware of and will factor into their thinking when looking at the allocation of capital across their business,” said a treasury official at a South African mining company.
Local banks also noticed the lack of borrowers coming to the market.
“Many local corporates are still sitting on the fence due to uncertainty in the market,” said Darryn Solomon, global head of financial institutions at Investec.
But despite the controversial rules and the uncertainty, South African gold mining company Harmony Gold signed a $350m loan last week, the first since the charter was introduced.
Before the charter, Sibanye was the first mining company to enter the market this year with a $2.7bn loan for the acquisition of Stillwater Mining in February.
Harmony Gold’s loan, which was taken out to refinance a $250m revolving credit facility taken out in 2015, didn't just scrape through. It proved surprisingly popular. The facility was oversubscribed, attracting three new lenders, and was even increased from the previous amount.
“The mining charter does create noise but banks are still committed to their client,” said a banker on that deal.
“Despite the South African downgrade there’s still positive momentum,” he added. “[South Africa] is recovering from commodity issues and the hit on growth but we’ve seen some green shoots which hopefully will lead to more deals.”
He expects more corporate deals to follow before the end of this year as a result of this recovery.
So it seems that the loans market is still there for embattled mining companies — they'll be able to dig their way out of the situation despite the court battle underway.