Can Harmony Gold Continue to Outperform Its Peers?

South African stocks defy gravity

South African stocks have been soaring since the start of 2016. The uptrend has been driven by gains in gold prices via the US dollar (UUP)(USDU) and weakness in the South African rand. While the weakening South African economy was already weighing down the rand in June 2015, the political turmoil that started in December 2015 was the ultimate trigger for depreciation. The rand slid to a record low in January. Along with rising gold prices, this fall has given South African gold miners a new lease on life.

Can Harmony Gold Continue to Outperform Its Peers?

Why Harmony outperformed peers

The graph above shows the 2016 price movement for South African gold companies. On a year-to-date basis as of March 28, 2016, Harmony Gold (HMY) has gained a staggering 251%. This growth dwarfed the gain in the VanEck Vectors Gold Miners ETF (GDX), which has risen 38% in the same period. Gold prices, on the other hand, have gained 13%. While Harmony Gold has an exaggerated price, other South African miners have also gained considerably. Sibanye Gold (SBGL) has gained 137% while AngloGold Ashanti (AU) and Gold Fields (GFI) have risen 75% and 26%, respectively. Miners’ gains are following a multi-year losing streak.

Harmony is much more exposed to South Africa than any of the other miners. Plus, it’s the highest-cost gold producer. These facts have made it much more leveraged to the increase in gold prices and depreciation in the rand.

Series overview

South African gold stocks, in particular, have been defying all laws of gravity and rising to higher price levels since 2016.

Coming back to Harmony Gold, the key question is whether the recent upward momentum is backed by fundamentals. In this series, we’ll perform a fundamental and technical analysis of the company.

We’ll also explore the near-term challenges and opportunities for the company. We’ll do a valuation analysis and explore what Wall Street’s saying about Harmony Gold. This series should help you understand whether the recent euphoria surrounding Harmony Gold is indeed backed by fundamentals.