Harmony Gold (HMY, Financial) is the largest gold mining firm in South Africa. The firm operates several deep mines, open cast mines and surface operations in South Africa and Papua New Guinea.
A high-quality portfolio
Harmony has a good mix of mines throughout South Africa and Papua New Guinea. An exciting prospect is the development of the Wafi-Golpu copper and gold deposit in Papua New Guinea, which received its environmental permit in late 2020.
The Golpu project (also in Papua New Guinea) is predicted to be a cash cow for the company. According to Harmony, the mine holds 20 million ounces of gold and 9.4 million tons of copper.
The copper exploits of the company enable it to service the electric vehicle market, which I find very encouraging. Both copper and gold are used as electrical components, so tech growth is good for both of these metals.
In South Africa, the company's acquisition of the Maponeng mine (the deepest gold mine in the world) and its waste solutions has provided it with a significant market share in the gold production space as the Witwatersrand basin in South Africa has the largest gold concentration on the planet.
Earnings and outlook
In August, the mining company swung to a full-year net profit of $378.3 million compared to a net loss in the previous year. Full-year gold production has increased by 28% while sustaining costs have risen by 13%.
Gold prices haven't assisted the miners in any way up till now, but looking forward, we may experience a bit of appreciation of the gold price as it has lagged its compatriot, crude oil. If this is realized, Harmony gold's earnings could gain significantly.
Valuation
Value signs are all over the place for this stock. Harmony Gold's price-earnings ratio is trading at a 66.26% discount to the sector averages. Furthermore, the stock also trades at a 52.75% discount to the industry's average price-sales ratio and a 56.29% discount to the average price-book ratio.
Free cash flow and CapEx have expanded by 47.90% and 42.44%, respectively, over the past year, indicating that shareholder value creation and reinvestment rates remain strong.
J.P Morgan (JPM, Financial) thinks the stock could reach the $4.10 mark, which would represent 16.15% in upside over the next 12 months - not bad if one considers the stock has a dividend yield of 2.68% as well.
Final word
Harmony Gold has a stronghold over the gold industry in South Africa with its Mponeng mine, and it's also expanding into copper in Papua New Guinea to facilitate the EV market. The stock remains undervalued, and it also pays a sound dividend. Thus, I believe it is undervalued at current levels.
