South African miners have traditionally traded at a discount to their global counterparts, primarily due to South Africa’s laws, labor concerns, and infrastructure challenges. Among these miners, Sibanye Gold (SBGL) is trading at the highest EV-to-EBITDA (enterprise value-to-EBITDA) multiple of 4.2x—a premium of 23.0% to the peer average.
The question, however, remains whether the stock will be able to maintain this premium given its poor operational performance. Its production has been falling, and its costs are ramping up, painting a grim picture. Casualties at its mines haven’t helped the company either. It has revised its production guidance downward twice in 2018.
AngloGold Ashanti’s rerating potential
AngloGold Ashanti (AU) has the second-highest multiple of 3.9x, representing a 14% premium to its South African mining peers. AU stock has also significantly outperformed gold miners in general year-to-date with a loss of just 2% compared to the VanEck Vectors Gold Miners ETF’s (GDX) return of -17%.
In the most recent quarter, the company reduced its net debt 15% year-over-year. The major catalyst for the stock going forward will likely be its sale of its South African assets, which could help it raise cash and cut losses. The company announced this restructuring last year. Analysts expect it to see significant earnings growth. Given the upcoming catalysts, AngloGold Ashanti stock could see an upside ahead.
Other key valuation catalysts
Gold Fields (GFI) is trading at 3.0x, a discount of 24% to its historical average and a discount of 13% to its peers. The company is struggling with continued difficulties at its South Deep mine. Due to these issues, the company downgraded its production guidance for 2018 during its third-quarter results. The strike at the mine continues, which could mean even further downside ahead.
Harmony Gold (HMY) is trading at the lowest multiple among its peers at 2.6x. The company bought a mine from AngloGold in 2018 and funded the acquisition through shares. This equity issuance was the major reason for the stock’s underperformance in 2018. While it remains a higher-cost producer, its management is expecting the South African rand’s weakness to support its costs going forward. Higher gold prices and a weaker rand could also provide support for the company’s valuation.