Valuing the Big Four RSA Gold Miners
Its difficult to compare and value Durban Roodeport Deep (DRD), Harmony Gold, Anglogold, and Gold Fields because...
- DRD's hedge book will cost $ 85 million to clear .. roughly 20 % of the market cap of the company.
- Anglogold's hedge book will cost about $250 to clear .. roughly 5 % of the market cap of the company.
- Harmony will gain 500,000 oz per year of free state production from the purchase of Anglogold's assets but at a cost of about 1.3 billion rand .. about 6% of their market cap.
However, these 3 companies can be compared by assuming that these one off costs will be met by theoretical increases in company stock .. as follows
157 * 1.2 = 188 mill shares for DRD
144 * 1.06 = 153 mill for Harmony
97 * 1.06 = 102 mill for Anglogold
with goldfields unaffected at 460 mill shares
costs assumptions based 4th quarter 2001 results as outlined below
(all in thousand oz and million rands)Forecast profits at $300 gold and 11.5 rand/$ rate will become:
DRD
1.05 mill oz/yr times (300- 2205/11.5)*.7 /188
= $0.42/share … at 10 P/E values DROOY at $4.20
Harmony
2.9 mill oz/yr times (300 - 2055/11.5)*.7/153
= $1.61/share ... at 10 P/E values Harmony at $16.10
Anglogold
6.9 mill oz/yr times (300 - 1960/11.5) *.7 /102
= $6.13/share at 10 P/E values Anglo's at $61.3 or $30.6 on the ADR
(Anglo can be expected to trade at a higher P/E because of quality of reserves and geographic mix of operations)
Gold Fields
3.95 times (300 - 2000/11.5 ) *.7 /460 =
$0.76/share or $ 7.60 at a 10 P/E ..
(there should be an added credit for platinum discovery for Gold Fields)
Based on the above, I'd expect a further run up in price of about 50 % on DRD and Harmony, and 30 % on Anglogold (PLUS what ever premium the market assigns on their proven ability to hedge and their geographic mix). Gold Fields seems close to fully valued.
Note 1 .. DRD Hedge Book
Forward sales over the next two years as follows
208900 oz at 1752 rd/oz close out cost gold @3450 = $31 mill
170000 oz at 2154 rd/oz close out cost gold @3450 = $19 mill
150000 oz at 2200 rd/oz close out cost gold @3450 = $16 mill
for a total close out cost of $66 mill
Calls sold
sold .. 100751 oz at 2042 .. cost $12.3 mill
sold .. 204000 oz at 2077 .. cost $24.3 mill
sold .. 34000 oz at 2084 .. cost $4.0 mill
total cost calls sold .. $40 mill
Calls bought
bought .. 65000 at 2300 .. profit $6.5 mill
bought .. 150000 at 3000 .. profit $6.0 mill
bought .. 150000 at 3000 profit $6.0 mill
total profit on calls bought = $ 18.5 mill
Total hedge book loss = 66 + 40 -18.5 = $87.5 mill
Note 2 .. I have NOT tried to include the effect of the sale of free state assets on Anglogold production will be reduced .. partly offset by reduced cost of production plus a gain of 2.2 billion rand.
John Disney PhD (Chem Engr)
jdisney@kingsley.co.za
21 February 2002
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