Gold Fields shares shrug off forecast

Investors brushed off Friday’s news that the world’s sixth-largest miner, Gold Fields, expects a sharp profit rise for its halfyear to end-June, amid an uncertain outlook for the precious metal. The global economic rebound and rising inflation have eroded demand for safe-haven assets such as gold.

Investors brushed off Friday’s news that the world’s sixthlargest miner, Gold Fields, expects a sharp profit rise for its half-year to end-June, amid an uncertain outlook for the precious metal.

The global economic rebound and rising inflation have eroded demand for safe-haven assets such as gold.

Gold Fields, the shares of which have risen almost 50% since the start of 2020, closed 1.35% lower at R143.34 on Friday, earlier losing as much as 3.7%, despite the miner saying it expects headline earnings per share to more than double for the half year. Its peers were also weaker on the day, with AngloGold Ashanti losing 1.98% to R293.22 and Harmony Gold 3.39% to R60.33.

Gold stocks have battled to find traction in 2021 given the wobbly gold price, which is influenced by several factors, including the shape of the global economy and interest rates.

Demand for the precious metal, which is regarded as a store of value, tends to rise in times of uncertainty or when investors are less confident about the direction of the global economy.

The price of spot gold peaked at $2,063.54/oz about a year ago, when the world economy was in the clutches of the Covid19 pandemic, before plunging to $1,683.54/oz in March 2021, the lowest since the start of the pandemic. It has since recovered to trade at R1,822.99/oz on Friday.

The world economy appears to be on a better footing than a year ago amid the rollout of the vaccination programme in developed markets in particular. It has revived investor confidence and boosted risk assets such as stock markets and curbed demand for gold.

Gold typically does better in low interest rate environments and when rates are expected to fall or remain extremely low, said Craig Erlam, market analyst at Oanda.

DOUBLE

“As long as the US Federal Reserve continues to commit to low rates and not paring back asset purchases — or hinting at doing so in the coming months — rates should remain low and gold well supported,” he said.

The fortunes of mining companies are closely tied to the gold price, which is down 4% so far in 2021, according to Infront data.

Gold Fields, which has mines across Australia, Ghana, Peru and SA, expects headline earnings per share to more than double from the 20 US cents it reported in the first half of 2020. Normalised earnings is expected to rise by up to 38% in the six months to June, driven by the higher average gold price.

The gold producer regards normalised earnings as the key measure of its underlying financial performance and excludes gains and losses on foreign exchange and other exceptional items.

In a trading update on Friday, Gold Fields said normalised earnings per share will be between 47 US cents and 51c, representing an increase of 27%-30% from a year ago.

Attributable gold equivalent production for the review period increased marginally to 1.104-million ounces, from 1.087-million the year before.

All-in sustaining costs rose 11% to $1,093/oz, from $987/oz, driven by an increase in net operating costs.

Unum Capital investment analyst Lester Davids said the performance of the gold sector will depend on the trajectory of US interest rates.