The end of mining strikes across South Africa has created a buying opportunity in several gold stocks, according to a report this week by CIBC World Markets.
Yesterday, the KDC East mine – owned by Gold Fields (GFI) – returned to work following a 23-day strike. CIBC analyst Leon Esterhuizen noted that KDC East is the “last major South African mine to go back to work,” and that Gold Fields lost approximately 3% of its annual production output due to the strike.
As for other large gold miners in South Africa, Esterhuizen estimated that Harmony Gold (HMY) lost roughly 1% of its annual production, while AngoldGold Ashanti (AU) shed 4%.
The CIBC analyst went on to say that “We believe that there is an opportunity in the SA gold majors, which are being unfairly penalized following the recent strike issues. The immediate production losses associated with these strikes were generally less than would be suggested by the share price performance since the labor unrest started.”
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On a valuation basis, Esterhuizen highlighted that “The stocks are all currently trading at about 5x to 6x P/CF compared to a historical trading range of 5x-20x.”
As a result, he contended that “These stocks offer some good upside over next couple of quarters. An increasing gold price over this period could further boost this upside potential, in our opinion.”
In early afternoon trading on Wednesday, shares of GFI rose by 1.4% to $12.77 while AU added 0.9% to $34.36. Shares of HMY fared quite better, jumping 6.7% to $8.60 after Harmony Gold reported better than expected earnings results.