Roberto CoelhoBy Roberto Coelho|February 7, 2022|6 Minutes|In Opinion


"Patience in despair  - How to make a mint out of a mining share."

 Be a learner, be logical and hold for the long term.

This is the story of how Wayne McCurrie, one of South Africa’s most well-known portfolio managers made one of his shrewdest decisions.

McCurrie is a respected Investment Expert and Portfolio Manager from FNB Private Wealth with more than. After more than 30 years in the market he is known to be a cool-headed investor looking for value investments.

For those who follow financial markets, the debate between value and growth investing has become heated over the past 12 months. For those not constantly following each minor peak and major trough, the difference may be hidden.

Before sharing a basic investment case study in a mining share, McCurrie and I discuss growth versus value investing.

Growth investing is the focus on capital appreciation. A growth investor will generally invest in companies showing above average economic growth. These investors are known to buy shares in companies with less focus on the valuation of the price, or less worry on valuation metrics such as price to earnings

On paper, a  company may seem overvalued, yet growth investors will overlook this with the hope of incredible future growth.

Generally, ‘growth stocks’ are companies in the technology space with high growth potential. An example of this is Tesla, with a PE ratio of 301 compared to General Motors with PE of 7. Tesla investors will forgive this ‘overvaluation’ with the hope of continuous high growth.

Value investing differs as value investors search for stocks trading at a significant discount to their intrinsic value. In other words, a company which looks cheap on valuation metrics like price to earnings.

As part of the discussion, McCurrie shares what he calls one of the greatest decisions of his career.

“As with everything in investments, you take a punt, no one knows the future,” he says.

The company in question was the mining house Kumba Iron Ore Ltd; part of the Anglo American stable, yet independently listed on the Johannesburg Stock Exchange.

In the years before 2013, Kumba and many other mining houses spent heavily on research and development, new mines and investments. During this time, iron ore was priced above $100 per tonne and mines churned out large profits.

“Markets go through cycles, they are cyclical,” says McCurrie.

The cycle changed and the price of iron ore dropped. By 2016 a tonne cost less than $50. The low price  mixed with the new mines from large investments led to supply outstripping demand.

Kumba suffered negative cash flows and the share price crashed.

At the peak in 2013, one Kumba share cost R611; by April 2015 a share cost R150.

In response to this 75% drop in Kumba’s share price, McCurrie believed he had identified a clear opportunity. He understood there to be value and believed that  R150 per share simply under-valued the company.

“When investing hopefully you’re right more than your wrong because the market is ruthless when you’re wrong.”

More than this, McCurrie was betting on the world economy needing iron ore to build new cities. He figures if the world needed Iron Ore, it needed Kumba – one of the world’s top five iron ore producers.

As McCurrie invested his client’s money at R150, the price fell to R120. He bought more.

By January 2016, the price had fallen to R26 per share, and Anglo American was considering selling Kumba.

“Half my clients left me, clients are human, they hate losing money, no matter what the rationale is.”

McCurrie followed his investing method perfectly, identifying value. The investment seemed to make sense on paper as the world would require iron ore. The final lesson from this brief case study is patience.

As Warren Buffett said, “the stock market is a device transferring money from the impatient to the patient.”

If McCurrie had folded at R26, he would’ve lost 80% of his investment with very little chance of getting it back.

By the end of 2017, Kumba’s share price had risen to R350 and continued to grow until reaching a peak in 2021 of R779.

“Now there was a dividend greater than the share price we paid,” McCurrie says in sharing in 2022.

“I was very wrong in the short term very right in the long term.”

Above all, remember Warren Buffet and be patient.


From Wayne McCurrie