Gold Fields Ltd. (GFI, Financial) closed at $2.75 on the New York Stock Exchange on Tuesday, reporting a 0.36% decline from the previous close. For the 52 weeks through Nov. 13, the share price declined 29%. The market capitalization is approximately $2.1 billion.
The stock is trading below the 100- and 200-day simple moving average lines, but is still above the 50-day line. The closing price onTuesday was 25% higher than the 52-week low of $2.2 and 65% lower than the 52-week high of $4.54.
The 14-day relative strength index is 51, meaning the stock is neither overbought nor oversold.Â
The price-book ratio of 0.83 and the EV-to-EBITDA ratio of 6.28 suggest the stock may be cheap because they are well below the industry medians of 1.74 and 9.3.
Gold Fields is a South African mining company with gold reserves and resources in South Africa, Ghana, Australia and Peru. The company also produces copper, but gold is the main source of revenue. The precious metal is extracted from underground and surface deposits. The company is also engaged in exploration and smelting activities.
The miner, which operates seven mines, is guiding for full-year gold production of 2 million ounces at an all-in sustaining cost of $990 to $1,010 per ounce of metal sold.
As of Nov. 14, the stock has a recommendation rating of 2 out of 5, which means that consensus is for a buy. The average target price of $3.44 per share mirrors a 25% upside from the market value at close on Tuesday.
Contrary to what the average analyst on Wall Street is suggesting, I am afraid this gold stock will underperform over the following weeks for several reasons.Â
First, the company's operating cash flow in the second half of the year will be affected by downtrending gold prices and declining production. On a year-over-year basis, the commodity was down 5.1% at $1,212.75 per troy ounce in the third quarter and production decreased 3% to 533,000 ounces of gold over the same period.
A bearish gold market sentiment along with a struggling South Deep mine in South Africa due to operational obstacles and reduced productivity following a restructuring process will likely impact the operating cash flow in the last quarter of the year as well.
Next, a strike that was started on Nov. 2 by the National Union of Mineworkers has forced management to lower guidance on annual gold production at the South Deep mine to approximately 154,000 ounces. The revised outlook is a nearly 52% reduction from the previous guidance of 321,000 ounces released in April.
The company is also advancing several mineral projects that will absorb a lot of the operating cash flow. These projects are located at Damang in Ghana, Gruyere in Australia and at the Salares Northe in Chile. Additionally, GuruFocus has assigned a financial strength rating of 5 out of 10, indicating Gold Fields could suffer hard business slowdown and recessions.
The South African gold producer hopes to prolong the life of operations at Damang by eight years and build a 13-year gold-producing mine at Gruyere, where 60% of its mineral resources, totaling 3.13 million ounces, are proven and probable reserves. Gold Fields is developing the Australian mineral project in a 50-50 joint venture with Gold Road Resources (ASX:GOR, Financial). The target is to create a low-cost mine.
In Chile, the company is improving efficiency in order to extract the precious metal at a profit from mineral resources estimated to be about 49.5 million ounces of silver and 3.66 million ounces of gold.
Gold Fields is producing the metal at an above-average all-in sustaining cost. This means a low commodity price environment will impact the gold margin per ounce of metal sold and the bottom line, putting additional pressure on the stock.Â
Disclosure: I have no positions in any securities mentioned in this article.
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