Stay abreast of COVID-19 information and developments here
Provided by the South African National Department of Health
GOLD FIELDS REVISITED
Sanlam Private Wealth
Nov 16, 2020
Gold Fields Limited is a gold mining company – it’s a producer of gold as well a holder of gold reserves. The company is involved in underground and surface gold and copper mining and related activities, including exploration, development, extraction, processing and smelting. It has around eight producing mines located in South Africa, Ghana, Australia and Peru.
Of South Africa’s three major gold miners – the others being AngloGold and Harmony – Gold Fields is best positioned to benefit from high gold prices and pay dividends. It can maintain production of ~2 to 2.5 million ounces of AuEq (gold equivalent) for the next eight to 10 years following countercyclical investments over the last five years. With an all-in sustaining cost of ~US$900/oz by 2023 in real terms, Gold Fields also has the lowest cost assets of the three miners.
In its earnings report released on 12 November, Gold Fields was set for adjusted gold production of between 2.2 and 2.25 million ounces for its 2020 financial year following a strong recovery in the third quarter. Production totalled 537 000 ounces in the quarter to the end of September, 7% higher year-on-year, and featured 63 000 ounces from South Deep.
South Deep, Gold Fields’ remaining South African asset, was among the most affected by COVID-19 lockdowns. The mine, which has underperformed for years until recently, was generating ‘meaningful’ cash flow in the current gold market, the group said in an update.
Meanwhile, Gold Fields remains in a strong financial position, having paid down debt to US$1.1 billion as at September 30 from US$1.2 billion at the end of June. This is after taking into account the company’s interim dividend payment of US$85 million.
Gold Fields is up 71% year to date. Over the past five trading days, the stock is down 16% and over the past three months it has dropped by 18%. Over the past 14 days the relative strength index (RSI) is at 38.50, which indicates it is oversold. Volatility has bounced significantly over the past few weeks, with the 30-day volume registering a high of 74.01%. The beta is also on the high side at 1.15.
Table: Peer comparison
An increasing number of investment houses is starting to advocate gold as a long-term play. Goldman Sachs said in a note on Friday that recent weakness in gold prices could be explained by the rotation towards value from defensive assets like gold and long-term growth stocks.
Over the short term, gold prices could continue to consolidate sideways, as ‘it may be difficult for gold to generate meaningful momentum in either a higher or lower direction,’ Goldman Sachs said. But over the longer term, gold ‘should benefit from continued strong investment demand’.
A weaker US dollar also supports gold prices – and a weaker dollar appears to be on the cards for next year. A breakdown in the correlation of gold and long-term real rates has been fairly common, with the correlation switching to the dollar and other commodities during these breakdown periods.
There has also been a strong rebound in emerging market gold demand of late, which should support higher gold prices through the wealth effect. Demand from China and India is already displaying signs of normalisation.
Biden’s election win and the vaccine news should continue to push currencies of emerging markets higher as tariff risks are lower, supporting their purchasing power. The strategic case for gold remains strong.
For investors with a more speculative bias and who would like exposure to the gold price and a geared gold company, we believe Gold Fields offers a short-term buying opportunity at the current levels.
Nov. 16, 2020
Vaccine news: game changer
for financial markets?
Director of Investments
CHEAP SHARES: ARE THEY
ALWAYS A BARGAIN?
Senior Investment Analyst
THE BENEFITS OF DRY TRUSTS
Head of Fiduciary and Tax
How we position portfolios
in a volatile world
Director of Investments
SA listed property:
is it a value trap?
Sanlam Private Wealth
Mini budget: foreign investment
crucial to address fiscal woes
Investment Economist at Sanlam Investments
How to protect
Head of Fiduciary and Tax
The case for
Head of Multi-Strategy, Sanlam UK
South AfricaSouth Africa Home Sanlam Investments Sanlam Private Wealth Glacier by Sanlam Sanlam BlueStar
Rest of AfricaSanlam Namibia Sanlam Mozambique Sanlam Tanzania Sanlam Uganda Sanlam Swaziland Sanlam Kenya Sanlam Zambia Sanlam Private Wealth Mauritius
GlobalGlobal Investment Solutions
Sanlam Private Wealth (Pty) Ltd, registration number 2000/023234/07, is a licensed Financial Services Provider (FSP 37473), a registered Credit Provider (NCRCP1867) and a member of the Johannesburg Stock Exchange (‘SPW’).
All reasonable steps have been taken to ensure that the information on this website is accurate. The information does not constitute financial advice as contemplated in terms of FAIS. Professional financial advice should always be sought before making an investment decision.
Participation in Sanlam Private Wealth Portfolios is a medium to long-term investment. The value of portfolios is subject to fluctuation and past performance is not a guide to future performance. Calculations are based on a lump sum investment with gross income reinvested on the ex-dividend date. The net of fee calculation assumes a 1.15% annual management charge and total trading costs of 1% (both inclusive of VAT) on the actual portfolio turnover. Actual investment performance will differ based on the fees applicable, the actual investment date and the date of reinvestment of income. A schedule of fees and maximum commissions is available upon request.
COLLECTIVE INVESTMENT SCHEMES
The Sanlam Group is a full member of the Association for Savings and Investment SA. Collective investment schemes are generally medium to long-term investments. Past performance is not a guide to future performance, and the value of investments / units / unit trusts may go down as well as up. A schedule of fees and charges and maximum commissions is available on request from the manager, Sanlam Collective Investments (RF) Pty Ltd, a registered and approved manager in collective investment schemes in securities (‘Manager’).
Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. The manager does not provide any guarantee either with respect to the capital or the return of a portfolio. Collective investments are calculated on a net asset value basis, which is the total market value of all assets in a portfolio including any income accruals and less any deductible expenses such as audit fees, brokerage and service fees. Actual investment performance of a portfolio and an investor will differ depending on the initial fees applicable, the actual investment date, date of reinvestment of income and dividend withholding tax. Forward pricing is used.
The performance of portfolios depend on the underlying assets and variable market factors. Performance is based on NAV to NAV calculations with income reinvestments done on the ex-dividend date. Portfolios may invest in other unit trusts which levy their own fees and may result is a higher fee structure for Sanlam Private Wealth’s portfolios.
All portfolio options presented are approved collective investment schemes in terms of Collective Investment Schemes Control Act, No. 45 of 2002. Funds may from time to time invest in foreign countries and may have risks regarding liquidity, the repatriation of funds, political and macroeconomic situations, foreign exchange, tax, settlement, and the availability of information. The manager may close any portfolio to new investors in order to ensure efficient management according to applicable mandates.
The management of portfolios may be outsourced to financial services providers authorised in terms of FAIS.
TREATING CUSTOMERS FAIRLY (TCF)
As a business, Sanlam Private Wealth is committed to the principles of TCF, practicing a specific business philosophy that is based on client-centricity and treating customers fairly. Clients can be confident that TCF is central to what Sanlam Private Wealth does and can be reassured that Sanlam Private Wealth has a holistic wealth management product offering that is tailored to clients’ needs, and service that is of a professional standard.