Gold price outlook
Global markets saw another major sell-off on Monday due to the oil price war between Russia and Saudi Arabia and continued fears about the new coronavirus outbreak.
As protection against elevated volatility, investors are purchasing gold, as it serves as a safe-haven asset. Gold closed at $1,672.50 per troy ounce on the London bullion market and at $1,675.70 per troy ounce on the Comex futures market on March 9.
To mitigate the damages to global economic growth, policymakers around the world are easing monetary policy, which mainly consists of cutting interest rates. A low-yielding environment favors investments in safe-haven assets. Thus, the yellow metal is projected to continue to move up.
Harmony Gold
In order to benefit from the next rally in the price of gold, investors may want to consider increasing their exposure to the rare earth metal. One way to do so is by purchasing shares of Harmony Gold Mining Co Ltd (HMY, Financial).
The South Africa-based gold miner and explorer has mineral properties in South Africa and Papua New Guinea. It has proven to be resilient to the global markets' current downturn, which is also affecting some competitors in the mining industry.
In fact, while the Van Eck Vectors Gold Miners exchange-traded funds (GDX, Financial) lost 4% over the past six weeks, Harmony has stayed in positive territory through a price jump of 11%. The Van Eck Vectors Gold Miners exchange-traded funds index is a benchmark for the mining industry.
In the past year, the stock has also outperformed most of its peers by an impressive 62%, as the chart illustrates below, on the tailwind of a nearly 30% rise in the price of gold.
As of March, five sell-side analysts recommend a buy, two analysts recommend a hold and one analyst recommends a sell for American Depositary Receipts (aka ADRs) of Harmony Gold Mining Co Ltd.
Wall Street sell-side analysts issued an average price target of $4.02 per share versus Monday’s closing price of $3.69. The margin reflects a nearly 10% upside.
Regardless of strong stock price growth of 85% in the past year, the stock doesn't appear expensive, as it trades slightly above the 100- and 50-day simple moving average lines and only marginally over the middle point of the 52-week range of $1.57 to $4.54.
The stock has a market capitalization of $2.11 billion, a price-book ratio of 1.39 compared to the industry median of 1.36 and an enterprise value-Ebitda ratio of -49.04 versus the industry median of 8.28.
The 14-day Relative Strength Indicator of 51 suggests that this stock is neither oversold nor overbought.
Currently, Harmony produces the yellow metal from its South African underground and surface mineral reserves, and from its Papua New Guinean mineral reserves, which together account for a total of 36.5 million ounces of attributable gold and gold equivalent.
In the company's first six months of fiscal 2020, which ended on Dec. 31, 2019, Harmony posted a gold production of 688,379 ounces, declining 8% compared to the same period of fiscal 2019 due to lower metal recovery rates and other operating issues reported at mines in South Africa. The all-in sustain cost (aka AISC) of $1,283 per ounce of gold sold worsened 10.6% compared to $1,160 per ounce sold the year before, mainly as a result of inflationary pressures and increased labor and energy costs.
However, Harmony Gold managed to close the first half of fiscal 2020 reporting a 63% year over year advancement in the free cash flow margin thanks to higher metal prices, which more than made up for the effects from lower sales volumes and increased production costs.
In full fiscal 2020, Harmony Gold expects to take advantage of rising gold prices with an expected output of 1.4 million ounces at an AISC of approximately $43,029.50 per kg of precious metal. The output will be lower than the 1.5 million ounces that the company initially guided for.
Disclosure: I have no positions in any security mentioned in this article.
Read more here:
- 3 Low Price-Book Stocks
- A Trio of High Earnings Yield Stocks for the Value Investor
- 3 Stocks Growing Capex Fast
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
