Grab This Gold Stock While It's Cheap

Gold prices have been in focus this week amid the Fed's highly anticipated September interest rate decision, with the central bank's pivot to an easing regime expected to be supportive for the rate-sensitive metal. Additionally, analysts note that the upcoming election should be another driver for gold (GCZ24), with both parties expected to add to the federal deficit once in office - creating a bipartisan bullish catalyst for gold bugs.

About GFI Stock

One way to invest in higher gold prices is through shares of gold mining stocks, like Gold Fields Ltd. (GFI). 

The South African company produces gold and copper(HGZ24) through exploration, extraction, processing, and smelting. It controls nine mines in South Africa, Ghana, Peru (including the Asanko Joint Venture), Chile, and Australia. Incorporated in 1887, GFI has more than 2.30 Moz of annual gold-equivalent production.

GFI stock has gained 20% over the past year, but is up only 1.7% so far in 2024 - suggesting the price has plenty of room to catch up with gold's progress.

Gold Fields stock currently pays its shareholders a dividend yield of 2.72%, based on its policy of paying out 30-40% of normalized profit as dividends. The payout has grown at a rate of 48% over the past five years.

“Disappointing” Results

Gold Fields sold off in August after the miner reported its first half 2024 results, which were negatively impacted by various operational challenges. Gold production dropped 20% due to backfill issues at South Deep, along with frozen pipes leading to the temporary shutdown of the Salares Norte site. This decreased GFI's gold production from 1.15 million ounces in the year-ago period to only 918,000 ounces in 1H of 2024.

“Our operational performance was disappointing with attributable production declining by 20% due to unplanned events,” said CEO Mike Fraser.

The setbacks increased their production cost per ounce to $2,060, a significant 47% hike over last year, and profits fell by 16% to $0.43 per diluted share. The company ended 1H 2024 with a free cash outflow of $58 million, while adjusted cash flow from operations totaled $321 million.

Should You Buy Gold Fields?

Analysts have a consensus “Moderate Buy” rating on GFI stock, up from “Hold” just one month ago. Overall, 6 analysts are covering the stock, with 1 “Strong Buy” rating, 1 “Moderate Buy” rating, and 4 “Hold” ratings.

Earlier this week, Bank of America analyst, Jason Fairclough initiated coverage on the stock with a “Buy” rating and a target price of $16, citing the company's attractive valuation and world-class asset base as catalysts behind the bull note. Additionally, the analyst expects Salares Norte to become a strong free cash flow generator for Gold Fields.

At 13.8x forward earnings and 5.60x EV/EBITDA, GFI looks cheap at current levels. The stock has a mean price target of $16.74, reflecting an upside potential of 13.8% from Thursday's close.

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On the date of publication, Ruchi Gupta did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.