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What’s Baked In to Gold Fields’ Analyst Ratings?

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Jun. 20 2018, Updated 10:31 a.m. ET

South Africa mining issues

Most mining companies with operations in South Africa are facing infrastructure issues and labor concerns. South African miners are also facing issues due to safety regulations at their mines following several accidents due to controllable and uncontrollable circumstances. This is also true of Gold Fields (GFI), which has mines in Ghana and South Africa.

Gold Fields stock has fallen 11.4% YTD (year-to-date) as of June 14, and so have its South African peers (GDX). Sibanye Gold (SBGL) has seen the highest fall of all at 45.8%, followed by Harmony Gold (HMY) and AngloGold Ashanti (AU), which have seen falls of 16.6% and 14.8%, respectively.

Currently, only 36% of the 14 analysts covering GFI have rated it as a “buy,” while another 50% have rated it as a “hold.” Its target price implies an upside potential of 11.5%.

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Ghana mine issues

African countries have started to demand higher payoffs from mining companies. Ghana also stated that it’s mulling over a change to its mining code. It currently holds a 10% stake in most mines but says it hasn’t received anything in terms of dividends since 2012. The government is thinking of new policies to derive more benefits from its commodities. It might also discourage unprocessed exports. These issues could haunt Gold Fields in the future.

Valuation

At a 3.2x enterprise value-to-EBITDA multiple, Gold Fields may seem quite cheap, but analysts and investors are waiting for some of these fundamental issues to be resolved.

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