FINANCE AND INVESTMENT
By NICHOLAS DAVENPORT THE only market on the Stock Exchange which is not enjoying a booming time is the pne in South African gold shares. It has sunk to the depression levels of 1931- before sterling was divorced from gold. One would imagine that the gold industry was deep in some final disaster. Yet in 1952, in spite of a £9 millions rise in working costs, it managed to show a working profit of £42 millions from which it distributed £19,800,000 in dividends. That is hardly the mark of doom, for it was only £3 millions less than it distributed in 1951. But the average investor is simply not interested. He has burned his fingers so often in the Kaffir market that he would not subscribe today to a new mine in the Orange Free State even if it were a solid block of gold. (I except the -specialists, for there are gold shareholders this week who are putting up more capital for that very promising O.F.S. mine called Harmony.) To some extent the South African finance houses have them- selves to blame, for they have asked the British public to subscribe too often to too many risky ventures at too dear a price. They were either too optimistic or too greedy -or both. But they are not to blame for the apartheid policy of the Malan Govern- ment which has scared the investor away from anything South African. They are not to blame for the shortage of native labour which has forced the old mines to work at only 70 per cent, of capacity. Nor are they to blame if Russia dumps gold in the free market to pay for consumer imports and causes the premium over the monetary price to disappear. This must be accounted sheer bad luck for them-though not for the Russian consumer who is having his standard of living improved by Georgi Malenkov.
Disappearance of the Gold Premium The loss of the gold premium may be a marginal factor but it is one of great impor- tance for the gold producer in South Africa. When gold hoarding was at its height on the Continent in 1949 gold was selling on the free market at the equivalent of $52 an ounce. Lured by this prize-and in spite of the protests of the International Monetary Fund-the South African producers decided to sell 40 per cent, of their output on the free market-disguised as " processed " gold. As supplies came forward the price fell until by the end of 1951 it had reached $38 an ounce. Even so the premium was sufficient to give the South African producer £3,647,000 in 1952-out of his total working profit of £42 millions. At the beginning of this year the gold hoarding and industrial demand was being fully met by the yearly sale on the free market of 4,800,000 ounces from South Africa and 3,000,000 ounces from other producers. Then gold hoarding In France began to flag. The high cost of living even caused some poor hoarders to dispose of a lump or two of gold for house- hold expenses. Finally, Russia threw an extra quantity of gold on the free market two weeks ago and brought the price down to $35.40 an ounce. At this level the South Africans have refused to sell. They are back on the mercies of the American Treasury which has so far stubbornly refused to alter its monetary price of $35. If they had any hope that Mr. Secretary Humphrey would raise the dollar price of gold at the first dark look of an American trade recession they must now be shattered by the rumour that he is considering a scheme to unfreeze the $2 billion special account in which the bulk of the " gold profit " was sterilised in 1934 when his predecessors wrote up the price from $20,67 to $35. The issue of gold certificates against that account would give the American economy enough reflation for quite a time. It does look as if the American Government would do any- , thing to avoid giving the Russians extra buying power by writing up the dollar price of gold.
The Uranium Life Line Although the outlook is black for any trader whose selling price is fixed but whose costs are rising-since 1938 the sterling price of gold, has in fact, risen by 75 per cent, but mining costs are up by 80 per cent. -the South African gold producer has still a silver lining to his cloud-in the shape of uranium. Practically all the gold bearing reefs of the Rand are uranium carriers and agreements have been made with a number of mines to produce uranium and sell it to the Government on a " cost plus " basis. The erection of the treatment plants is financed by Government loans which are repaid over ten years out of profits. In the case of the first two mines to produce uranium-West Rand Consolidated and Western Reefs- it is estimated that the uranium profit, when the plants are working at full capacity, will be sufficient to raise their present dividends from 3s. 6d. to 5s. 3d. and from 2s. 6d. to 5s. 6d. per share respectively. This indicates the strength of uranium as a life line for the favoured gold producers. The same argu- ment applies, of course, to the select developing Mines of the Orange Free State, of which I would choose Western Holdings and President Brand, if not Harmony. When the market in South African shares moves into the cut-price bargain basement, as it will, these thoughts should be brought to mind. And whatever Mr. Humphrey may decide for the United States it is incontro- vertible that the gold reserves of her Allies are quite inadequate to meet the fluctuations of their international trade as long as their gold is priced at $35 an ounce.
Stock Exchange Gallery The public can now see the Stock Exchange at work from the new gallery (open from 10.30 to 3.0) which has been built largely on the initiative of the present Chairman, Sir John Braithwaite. But a peep show is no substitute for intellectual enlightenment. That can only come when the Stock Exchange publishes a Quarterly, as I suggested two weeks ago. The Press comment which would regularly follow such a publication each quarter would really enlighten the public on the essential part which the Stock Exchange plays in our national economy.
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