Gold has been one of 2020’s best performing assets. Because of a prevailing high risk and low interest rate environment, many investors shifted at least some of their assets into safe haven investments amid rising market uncertainty and volatility.
Gold witnessed one of the lowest drawdowns during the year compared to other asset classes. However, the safe-haven asset is currently witnessing a correction because rising Treasury yields and a prospective macroeconomic recovery are raising investors’ risk appetite.
However, limited vaccine supply and resistant and highly contagious coronavirus mutations, are expected to be significant headwinds to the macroeconomic recovery. Hence, relatively undervalued gold mining companies like Harmony Gold Mining Company Limited (HMY) and Centamin plc (CELTF) could benefit significantly.
Harmony Gold Mining Company Limited (HMY)
HMY is a world-class gold mining and exploration company that has operations and assets in South Africa and Papua New Guinea (PNG). The company’s assets include one open pit mine and several exploration tenements in PNG, as well as nine underground mines and one open pit operation and several surface sources in South Africa. HMY also explores for uranium, silver, and copper deposits.
Over the last few months, several asset management firms have acquired beneficial interests in the company’s securities. Earlier this month, Fairtree Asset Management (Pty) Ltd. acquired a 5.04% interest in HMY’s ordinary shares. And in January , Van Eck Associate Corporation acquired a 10% interest in the company’s outstanding shares.
Last December, HMY reported that the company-maintained a CDP A-rating for water management in 2020. The rating demonstrates HMY’s commitment to containing the environmental impact of its business operations and a sustainable approach towards long-term business value-creation.
HMY’s revenue has increased 39.5% year-over-year to R$21.59 billion for the six-month period ended December 31, 2020. Its operating profit has increased 240.5% from the year-ago value to R$5.56 billion, while its net profit has risen 336.3% to R$5.81 billion over the six-month period.
HMY’s forward-12-month p/e of 3.53x is 78.7% lower than the industry average 16.54x. In terms of forward-12-month price/sales, the stock is currently trading at 0.84x, which is 42.4% lower than the industry average 1.46x.
The consensus revenue estimate of $2.83 billion for its fiscal year 2021 (ending June 30) indicates a 58.4% improvement year-over-year. The stock has gained 40.4% over the past nine months.
HMY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
HMY has an A grade for both Value and Growth and a B for Momentum. It is currently ranked #16 of 46 stocks in the B-rated Miners - Gold Industry.
Beyond what we stated above, we have also given HMY grades for Sentiment, Quality and Stability. Get all the HMY ratings here.
Centamin plc (CELTF)
CELTF is engaged in the exploration and production of precious metals in Australia, Jersey, Egypt, Burkina Faso and Cote d'Ivoire. The company explores for gold ore deposits. Its principal asset, the Sukari Gold Mine, is one of the world’s largest gold producing mines with a bulk tonnage open pit and underground operation.
In December, CELTF contracted Capital Ltd to complete a 120Mt waste-stripping program in the Eastern section of the open pit over the next four years. This program is designed to introduce greater flexibility into the open pit mining operations, which will support the company in meeting stated production targets in the future.
CELTF’s Gold production from the Sukari Gold Mine for the fourth quarter (ended December 31, 2020) was 67,996 ounces, which was in-line with the quarterly guidance range of 60,000 to 70,000 ounces. The company reported revenue of $150 million generated from gold sales of 79,535 ounces at an average realized gold price of $1,887/ounce.
In terms of trailing-12-month P/E, CELTF is currently trading at 11.83x, 55.4%, which is below the industry average 26.54x. In terms of forward-12-month ev/sales, the stock is currently trading at 1.63x, which is 12.1% lower than the industry average 1.85x.
The consensus revenue estimate of $819.45 million for the fiscal 2021 (ending December 31) indicates a 24.5% improvement year-over-year.
It’s no surprise that CELTF has an overall rating of A which equates to Strong Buy in our POWR Ratings system. CELTF has a B grade of B for Stability, Momentum and Quality and, and an A for Value. It is ranked #4 in the same industry.
Click here to see the additional POWR Ratings for CELTF (Sentiment and Growth).
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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HMY shares were unchanged in after-hours trading Wednesday. Year-to-date, HMY has declined -2.14%, versus a 4.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands.
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