What’s Ailing South African Gold Miners?
Performances of South African miners
After a stupendous 2016, the South African gold miners (GDX) have had a disappointing run so far in 2017. As a group, they’ve lost 10.8% YTD (year-to-date) as of October 6, 2017, compared with GDX’s gain of 12.1% and GLD’s gain of 10.3%.
This substantial YTD underperformance appears to be primarily due to country-specific and company-specific factors. In 2Q17, Fitch and S&P (Standard and Poor’s) downgraded South African minders to junk status.
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The South African government introduced a new charter in June 2017 that required companies to ensure that at least 30% of their ownership would be in the hands of black South African citizens. This charter was later suspended, but the issues related to the law have caused uncertainty, labor, infrastructure, and blockade problems to persist.
Among these miners, only Gold Fields (GFI) has given a positive price performance at 40.7% YTD. Harmony Gold (HMY), AngloGold Ashanti (AU), and Sibanye Gold (SBGL) have lost 14.7%, 9.3%, and -1.0%, respectively, YTD.
South African ratings
The deteriorating analyst sentiment for South African miners is visible in the pattern of their ratings, with three of four miners garnering “hold” recommendations as their majority ratings. Sibanye Gold, AngloGold Ashanti, and Harmony Gold (HMY) have 69%, 54%, and 70% “hold” ratings, respectively.
The “buy” ratings for these three miners are 15%, 38%, and 10%, respectively. Gold Fields (GFI) has 36% “buy” and “sell” ratings, and the remaining 29% rate GFI as a “hold.”
Changes in ratings and target prices
Sibanye Gold’s target price represents a potential upside of 29.8%. AngloGold and Harmony Gold have implied upside potentials of 27.7% and 16.6%, respectively. Gold Fields’ target price, on the other hand, represents a downside potential of 9.9%.
In the next and final part of this series, we’ll examine the key rating changes for South African mining companies.