From the time that gold prices dropped following the U.S. elections to their recent lows under $1,200/oz, gold mining companies saw a promising year end on a sour note in 2016. Many of the industry’s biggest players have staged major turnarounds to start this year, however.
As a whole, gold miners have been underperforming the rest of the commodities sector as a whole: the FTSE Gold Mine Index (FTGM) is at its lowest since early January, as is the VanEck Market Vectors Gold Miners ETF (GDX). A number of major miners like Newmont (NEM) and Barrick (ABX) have lost money so far this year. In some ways, the sector has continued to show short-term weakness. But for a handful of the mining firms (both large and small) focused on Africa, the outlook for 2017 has been far more promising.
In terms of its stock price, Randgold Resources (GOLD) is the best-performing gold miner in the world over the last decade. After a string of successful acquisitions, Randgold is now focusing on operating in the Democratic Republic of Congo. Although the country’s gold production has skyrocketed more than sixfold over the last three years, it is a notoriously difficult place to do business, whether domestic or multinational.
Although other global miners like AngloGold Ashanti (AU) have struggled to maintain their Congolese business, Randgold is counting on output from its Kibali mine, which produced over 640,000 oz of gold in 2015 and is projected to reach 750,000 oz annually by 2018.
Sibanye Sets Record
South Africa-based miner Sibanye Gold (SBGL) saw a new record-high operating profit in 2016 thanks to its gold and platinum mining interests. Profits increased 60% year-on-year and, even amid the late-year downturn, were 29% higher during the second half of 2016 compared to the same period the previous year. Aside from a great bottom line, earnings for the company also rose 269% over 2015.
Shareholders were happy, as the company reported better than 5% dividend yield. Over the course of the year, it paid out 145 cents (in South African rand) per share, or 11¢ USD per share in dividends. In addition to over 750,000 oz of gold output, the company produced nearly 330,000 oz of platinum over the six-month period in the earnings report.
The mining of precious metals partly shares a common fate with the entire commodities mining sector—of which Glencore (GLEN) is one of the giants. Given the recent slowdown in the consumption of natural resources in China, the company was facing some difficult times. However, its increased earnings and successful debt-reduction plan have helped catapult its stock price: Shares of GLEN have doubled over the past 12 months. Meantime, its adjusted profit surged 48%.
Glencore is a major copper producer, leading it to seek more M&A deals for new mines emerging in the Democratic Republic of Congo, as well.
Aside from the major miners, there are a new crop of gold exploration companies springing up in Burkina Faso. The landlocked West African country, which borders Ghana and Côte d’Ivoire (Ivory Coast), is the fastest-growing gold producer in the world. This makes Burkina Faso an ideal candidate for mergers and acquisitions within the industry.
Ghana and the surrounding region has a long history of rich gold resources dating back to the powerful Ashanti Empire during what was for the rest of Africa the colonial period (roughly 1700 to 1950). This is not to be confused with Ghanaian Empire, also known for its gold trade and material wealth, that ruled in present-day Mali from the 5th century CE to the 13th century.
Always keep in mind that owning shares in a gold mining company is a more leveraged play than buying physical bullion.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.