What happened
It's been a pretty good week for investors in precious metal stocks, with the majority of gold stocks on track to end it on a positive note. The top-performing stocks from the industry, in fact, surged by double-digit percentages at their highest points in trading this week, according to data provided by S&P Global Market Intelligence.
Some of the top stocks include:
- Harmony Gold Mining(NYSE: HMY), which jumped 19.1%
- DRDGOLD(NYSE: DRD), which gained 12.7%
- Sibanye Stillwater(NYSE: SBSW), which rose 12.5%
Three factors drove these stocks higher: earnings, precious metal prices, and South Africa.
So what
Among the three stocks, Sibanye Stillwater was the first to give investors a glimpse into how it fared in the first half of 2023. Although the platinum and gold producer will announce its numbers for the period next week, it issued an update last Friday in accordance with the law in South Africa, which requires a company to publish a statement if there's a "reasonable degree of certainty" that its numbers for a period will "differ by at least 20%" from the previous year's corresponding period.
You'd believe Sibanye declared great numbers going by the stock's rally this week, but that's not the case.
On the contrary, Sibanye said its earnings per share (EPS) for the six months ended June 30 is expected to decline by 35% to 42% because of lower prices of the platinum group metal (PGM) and lower production in the U.S. Specifically, its production of platinum and palladium from the U.S. fell 11% year over year, partly because of a shaft incident at one of its mines.
Why did Sibanye stock still rally this week? Turns out that after hitting a 10-month low of $882 an ounce on Aug. 16, platinum prices rebounded to above $940 per ounce this week, according to data from Trading Economics.
The biggest tailwind was China, with Beijing unveiling stimulus measures to shore up the economy. China is the world's largest platinum consumer. Although the metal has diverse uses across several sectors, it is becoming an increasingly important component of hybrid and electric cars. Automotive applications, in fact, are projected to be a major demand driver for platinum in the coming years.
China's stimulus also drove prices of gold higher this week and further fueled investor interest in stocks like Sibanye, Harmony Gold, and DRDGOLD. Higher prices are especially important for these companies now, as all three are based in South Africa, where chronic problems like power cuts and a shortage of labor are taking a toll on the mining sector's productivity.
Harmony Gold, however, appears to be navigating the challenges well. In its pre-earnings statement this week, Harmony Gold said it had hit the upper end of its production guidance in the fiscal year ended June 30, which means investors can expect to see good numbers in Harmony Gold's upcoming earnings report on Aug. 30.
More importantly, the gold mining giant expects its EPS to swing to a profit of $0.43 to $0.45 from a loss of $0.08 in the previous year. That's huge, and it's no surprise that Harmony Gold stock was a top performer this week.
DRDGOLD also expects higher gold production for fiscal 2024 after hitting the midrange of its guidance for fiscal 2023 ended June 30. The company's revenue increased roughly 7% last fiscal to around $295 million. Above all, DRDGOLD declared a final dividend of 65 South African cents this week, topping up its interim dividend of 25 South African cents. DRDGOLD has paid a dividend consistently for 16 consecutive years now.
Now what
All these stocks could move even higher if prices of precious metals continue to rise. The one stock you'd want to watch next week, though, is Harmony Gold when it reports its numbers. Its outlook has already impressed the markets, but strong top-line numbers and management's views on the near future, if positive, could help the gold stock sustain its momentum.
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Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
