Like many of you, I was shocked and saddened by the bloodshed at Lonmin’s Marikana platinum mine in Rustenburg, South Africa last week. Violence following a wildcat strike over miners’ wages left over 40 people dead.
Lonmin (LON:SJ) pays its platinum miners approximately $1200 per month to do the dangerous work of extracting the precious metal from the earth. In contrast, Lonmin’s CEO, Ian Farmer, received approximately $1.9 million in salary and benefits during the 2011 fiscal year — over 130x more.
Inequality like this and the violence that it frequently ignites are two reasons that I hate mining stocks.
But in the perception of many global investors, mining is where African investment begins and ends. And it’s not difficult to see why. Much of the media coverage of African business pertains to the extraction of minerals or other resources.
Unearth Profits Without Mining Stocks
Fortunately, mining stocks represent less than half of all listed African firms. So, it’s quite possible to build an African stock portfolio without them.
Shunning mining stocks might be in the best interest of your wallet, too. Take a look at the five-year performance of the FTSE/JSE Africa Mining Index (JMNNG:IND) compared to the performance of the Johannesburg Stock Exchange as a whole.
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The market clearly crushed mining stocks. Now, check out how an investor may have fared if they intentionally avoided the mining sector. The chart below shows the mining index’s performance versus that of other key sector indices.
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Still not convinced that African mining stocks can turn your portfolio to rubble? Let’s go back a bit further.
The MSCI South Africa Index Fund ETF (EZA:US) is comprised of 50 of the Johannesburg Stock Exchange’s largest listings. Since its launch in May 2003, it has returned 338%. How did that stack up against South Africa’s largest miners over the same time period?
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So, if investing in mining stocks makes you queasy like it does me. Rest assured that you’re not missing out on much by passing them by.
What Do You Think?
Should socially responsible investors avoid African mining stocks? Why or why not? Let us know your take in the comments!