Reiterating his Hold recommendation on Harmony Gold Mining Company Limited (HMY), Zacks senior mining industry analyst Mario Ricchio explains why the future looks bright for the mining company:
'Harmony Gold's return to profitability in FY07 was attributable to higher gold prices and a weaker South African Rand relative to the U.S. Dollar. The weaker South African rand is increasing the company's realized gold price in local terms. Going forward, Harmony is focused on reducing its overall operating costs through its CONOPS agreement and the shut down of loss-making shafts.
'Even with an earnings rebound this fiscal year, we have applied a discounted multiple to HMY ADRs to reflect a significant production profile in South Africa. Our target price of $12.75 is based on around 1.00x P/NPV valuation metric. Currently, Harmony is trading at 0.92X P/NPV, based on a NPV of $13.20 per American Depositary Receipt.
'Over the past five years, the company's ADRs have traded between 1.5x and 3.0x P/NPV. Harmony's attractive pipeline of long-term growth projects will boost production and higher gold prices will support top-line growth.'
(Read the full analyst report on HMY.
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