There's a hunt for the golden egg on the go as gold mining companies take a dip and the dollar value continues to rise.
The U.S Department of Labor released stronger than expected employment data for the month of July which showed the U.S economy added 943K new jobs. The U.S Dollar reacted to the surprising increase in employment numbers and soon gained strength while commodities like gold became out of favour with investors. Gold mining companies could feel some pressure while the price of Gold (XAU/USD) moves lower as tapering talks from the U.S Fed adds fuel to the fire.
What is Tapering?
Tapering is the reversal process of excessive money in the system (quantitative easing) by the U.S Federal Reserve Bank (Fed). This comes after an unprecedented period in 2020, which led to the Fed issuing more stimulus packages, creating a spike in gold prices within the CY21 period. Tapering, therefore, reduces the excess money in the system in an attempt to prevent side effects such as high inflation once the dust settles.
We'll be taking a look at three Gold mining companies:
DRD Gold Limited (DRD)
It's sometimes said that the lower the price, the higher the risk, and subsequently the higher the rewards. DRD, trading at R14 per share with a market cap of R12.4 billion and has delivered returns of over 500% since 2016. It also has a 5 Year monthly BETA of 1.23, making the stock more volatile on the market.
As gold prices continue to decline the operations for the quarter ended on 31 March 2021 reflected a decline of 6% in gold production with a decrease of 8% in gold sales, resulting in a 35% decline in the company's EBITDA to R371.7 million
Dealings of ordinary shares
Insider trading from the beginning of the 2021 calendar year (CY21).
- Director Niël Pretorius sold 25 000 shares on March 15th 2021, leaving the director with 475 225 shares in DRDGold.
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Harmony Gold Mining Company Limited (HAR)
Harmony Gold has positioned itself to be the leading gold miner in South Africa, after acquiring all AngloGold Ashanti's South African assets. Harmony is currently trading at around R52 per share with a five-year monthly BETA of 0.77. Given the low volatility of the company compared to the market, Harmony stock has delivered a return of over 60% since 2016.
Acquired assets gave the company boost to achieve EBITDA of R9,439 Billion, an increase of 360% vs the previous correspondent period (pcp) as gold production increased by 13.5%. The company has a market cap of R31.8 billion with an enterprise value of R34.02 billion.
Dealings of ordinary shares
Acquisition of beneficial interest in Harmony ordinary shares, during the CY21.
- Fairtree Asset Management - 23 June 2021 - increase to 5.0728%.
- Public Investment Corporation - 3 May 2021 - Increase to 10.081%.
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AngloGold Ashanti Limited (ANG)
AngloGold is trading at its 52-week low point after announcing that its key operations in Ghana remained suspended for the 2021 calendar year (CY21), a contributing factor behind the dip of over 10%, minutes after the market open on Friday 6th of August 2021.
The company also reported the six months ending 30 June 2021, that production and sales of gold dropped slightly compared to the previous year resulting in a decline of 15% in EBITDA to U$ 876 million vs. pcp EBITDA of $1,03 billion.
Trading at around R230 per share, AngloGold Ashanti’s share prices has delivered a return of around 30% since 2016 with a five-year monthly BETA of 0.14, reflecting less volatility than the market, which showed lower returns. The company has a market cap of R94.8 billion and a market value of R104.23 billion.
Dealings of ordinary shares
Insider trading from the beginning of the 2021 calendar year (CY21)
- Director Kojo Busia obtained 1 000 shares via American Depositor -23 February @ $20.75 & 18 May@ $25.35.
- Prescribed officer Graham Ehm sold 55 503 shares - 19 May @ AU$6.3140.
Acquisition of interest
- Coronation Asset Manager increasing its interest to 5.02% - 30 June 2021.
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While investing in gold mining companies may be considered profitable for long-term investors, particularly as a hedging investment against inflation, keep in mind that a company's fundamentals play a crucial role in ensuring better returns on your investment.
As more free money exits the US economy, we may expect a strong correction from gold, which will take down miners' stock value with it. Due to demand, the gold value may find support in the short to long term.
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Sources – EasyResearch, JSE Sens, AngloGold Ashanti Limited, Harmony Gold Mining Company Limited, DRDGOLD Limited, BusinessLive, Investingcube
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