Less exposure to South Africa
AngloGold Ashanti (AU) is less exposed to South Africa than other South African miners. About 30.0% of its production comes from South Africa. In times of higher gold prices, being exposed to South Africa has its benefits, but it acts as a downside when the price outlook is weak.
South Africa is a very difficult market environment to operate in, given its labor and infrastructure issues. Gold mining costs are higher in South Africa than in other areas. Also, wage negotiations have been ongoing for quite some time without a full resolution. These factors have contributed to South Africa–exposed miners trading at a discount to their global peers.
About 36.0% of AngloGold’s production comes from other African countries, including Ghana, Democratic Republic of the Congo, Tanzania, Mali, and Guinea. Some of these locations, particularly Ghana, have been facing problems of law and order at the mines.
Gold Fields (GFI) has been trying to diversify away from risky mining jurisdictions. In 2003, it unbundled its labor-intensive South African operations in Sibanye Gold (SBGL). It also purchased assets from Barrick Gold (ABX) in Australia.
The company’s geopolitical risks have thus reduced greatly, with ~45.0% of its production coming from Australia and 9.0% from South Africa. But it still has one of its major projects—South Deep mine—in South Africa. The company has a lot tied to the successful ramp-up of this project.
South African pure plays
Sibanye Gold is fully exposed to South Africa, which accounts for 100.0% of its production. Close to 90.0% of Harmony Gold Mining’s (HMY) production comes from South Africa, with Papua New Guinea accounting for the rest. As you can see in the above graph, these two companies are the most exposed to South Africa.
As gold prices have been rallying and the rand has weakened, these players have outperformed the rest by a huge margin since the start of 2016. As we’ve highlighted in How Should Gold Investors Play the Fed Rate Hike? the outlook for gold could be weaker going forward. Some investors may opt for companies with more stable exposure in such a scenario.
The SPDR Gold Shares (GLD) mirrors gold prices in the market. Gold Fields and AngloGold Ashanti account for 8.2% of GDX’s holdings.