Harmony Gold (HMY) is the largest gold mining company in South Africa.
The firm operates various open cast and deep mining properties, including the world’s deepest mine. I am bullish on the stock. (See Analysts’ Top Stocks on TipRanks)
Increased Output in Q1, Positive Outlook
Harmony reported its first-quarter production results in November, in which it was mentioned that the company experienced surging production.
The firm’s Gold production rose by 7% during the quarter despite a 3% decline in the Mponeng mine’s output due to maintenance disruptions.
The South African mining house expects full-year revenue to come in strong with the production estimate set between 2.3 million to 2.35 million equivalent ounces at a price range between $1,020-$1.060/oz.
According to Harmony’s management, its “re-engineered portfolio has shown a 27% increase in underground tonnes milled for the September 2021 quarter when compared to the September 2020 quarter and a 26% increase in gold production from our underground mines.”
Mponeng Mine Acquisition, Copper Exposure
Harmony acquired the world’s deepest mine in October 2020 from Anglo Gold Ashanti (AU) in a $200-million deal. The VCR reef is the mine’s focal point, and it’s believed that 45.8 million ounces in remaining reserves have been identified.
The development of the Wafi-Golpu and Golpu projects in Papua New Guinea has allowed Harmony to be part of the renewable energy craze by way of copper production.
These projects are thought to be game-changers for the company, and could ensure that revenue remains sustainable amid a changing demand landscape in the metals space.
Valuation
Relative to the sector, Harmony’s P/E ratio is trading at a 61.8% discount, while its price-to-sales and price-to-cash flow ratios are also trading at 45.6% and 61.8% discounts, respectively.
Based on these metrics, we can infer that we’re looking at an undervalued stock with significant upside opportunity, if mean reversion is to materialize.
Wall Street’s Take
Wall Street analysts are on neutral grounds on the stock’s prospects. Both of the two ratings that have been assigned have been Hold ratings. The average Harmony Gold price target on the street is $4, presenting 15.4% in potential value upside.
Concluding Thoughts
Harmony Gold is turning into a silent monster. The company’s exposure to the Mponeng mine and copper projects in Papua New Guinea has paved the way for years of success.
The stock is undervalued according to key metrics and could be a good investment at the moment.
Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.
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