In 2023, it was one of those rare years when nearly all major asset classes - including equities, bonds, real estate, and gold - rallied. Despite ongoing geopolitical tensions in Eastern Europe and the Middle East, along with broader macroeconomic concerns over a slowdown in the U.S. and abroad, investors and consumers alike proved surprisingly resilient. While the artificial intelligence (AI) helped to drive equity markets sharply higher, bonds caught a bid as yields surged to multi-year highs, and home prices stayed strong to defy calls for a real estate bubble.
Through it all, persistently high inflation and a softening U.S. dollar, coupled with the metal's reputation as a safe-haven investment, propelled gold to new highs. The precious metal's winning run is expected to continue this year, with TD Securities anticipating gold to surpass $2,100 in 2024, while Wells Fargo forecasts gold prices to rally up to $2,200.
However, Wall Street is considerably less optimistic about two of the best-performing gold stocks of 2023, which are trading well above analysts' mean price targets after a stellar run higher. Here's a closer look.
Compania Mina Buenaventura S.A.
Founded in 1953, Compania Mina Buenaventura (BVN) is a Peruvian mining and exploration company with a focus on gold and other precious and industrial metals, such as silver, copper, lead, and zinc. The company currently commanding a market cap of about $3.75 billion.
BVN had a stellar performance in 2023, up nearly 94% over the past 52 weeks.
However, the recent quarterly results do not support the stock price rally. In the latest quarter, the company's losses widened by 20% from the previous year to $0.11 per share. This was far worse than analysts' expectations for a profitable quarter. BVN's bottom line has missed consensus expectations in three out of the last five quarters.
Net sales during the quarter rose by 8% from the prior year to $211.3 million. This is largely due to the overall rise in commodity prices, as the company's sales volume across metals - including gold (-27% YoY), silver (-11% YoY), lead (-69% YoY) and zinc (-62% YoY) all dropped from the year-ago period, with only copper volumes rising(+55% YoY). Likewise, gold production fell 27.2% from the prior year.
And production problems in Peru seem likely to persist. Accessing high-grade ore at the Tambomayo mine requires more effort while the suspension of mining and processing of ore storage in late 2022 at the La Zanja mine provided another headwind. Finally, a decrease in treated ore at the Julcani mine and the ongoing transition to copper from polymetallic ore at the El Brocal mine are also presenting operational challenges.
BVN's liquidity position also weakened, as the company ended the quarter with a cash balance of $221.8 million compared to about $254 million at the start of the year. This compares to its net debt position of $493.7 million, with an average maturity of 2.7 years.
On a longer-term basis, too, the company's revenue and EPS performance is underwhelming. Over the past 10 years, BVN's revenue and diluted EPS have contracted at a negative CAGR of 5.32% and 13.13%, respectively.
Despite the lackluster fundamental performance, BVN is priced at a premium. The company's stock is trading at a forward P/E 48.26 and forward price/cash flow of 20.21, both of which are considerably higher than sector median valuations.
Analysts seem unimpressed, with a consensus rating of “Moderate Sell” for BVN and a mean target price of $9.45. This represents expected downside of 37.6% from current levels. Out of just 2 analysts covering the stock, 1 has a “Hold” rating while the other has a “Strong Sell” rating.
Harmony Gold Mining
Founded in 1950, Harmony Gold Mining (HMY) is a global gold mining and exploration company. The largest gold mining company in South Africa, its operations are primarily spread across South Africa and Papua New Guinea, with recent expansions into Australia. The company operates nine underground mines, one open-pit mine, and several surface operations in South Africa alone. Its market cap currently stands at $3.7 billion.
Harmony Gold stock has been a standout, rallying 58.9% over the past year. The company also offers shareholders a modest dividend yield of 0.67%.
In FY23, Harmony reported a yearly decline in revenues to $2.77 billion compared to $2.80 billion in the prior year. However, net income jumped by almost six times to $271 million.
Gold production slipped by 1% yearly to 1.47 million ounces in FY23 from 1.49 million ounces in FY22. Notably, gold production in Australia - where Harmony has a significant portion of its operations - is slowing, which could hinder growth for the company going forward.
The company's 2023 results also highlighted the unique operational issues for miners in South Africa. A tariff hike for electricity and water costs by South African utility giant Eskom resulted in a 9% YoY increase in HMY's cash operating costs in FY23, and the utility's customers also risk increasing power outages in the winter months.
Over the past 10 years, Harmony's revenues have expanded at a CAGR of 11.97%. However, worryingly, the company has yet to achieve profitability on a full-year basis.
Given that, some key valuation metrics do not apply to the company. Based on its forward price/sales ratio of 1.42 and price/book of 165.04, though, the stock is trading at a premium to its sector peers at current levels.
Taking all of this into account, analysts have a consensus rating of “Strong Sell” for the stock, with a mean target price of $4.05. This denotes a downside potential of roughly 31.5% from current levels. Out of 3 analysts covering the stock, 1 has a “Moderate Sell” rating while 2 have “Strong Sell” ratings.
