SA Golds:SA Gold 3Q17,riches to rags

Neutral gold price outlook from here leaves us negative on the equities

    We expect the USD-gold price to remain around US$1,250/oz over 2017E-2019E.In this note, we upgrade our 2017USD-gold price by +4% to USD$1,250/oz (largely marking second quarter to spot) and tweak 2018E-2022E lower bybetween -0.4% and -1.7%. We have made no changes to recommendations, wehave made minor price target adjustments and we have updated our financialforecasts for the new commodity prices. Earnings are upgraded for FY1owing toour 4% higher forecast USD-gold prices, but remain below FY0(fiscal year 2016)for all producers except for Harmony (which benefits from profitable hedges yearon-year). With a neutral outlook for the gold price, we are bearish on the sectorover the medium-term as we expect margin compression to continue. We retainSell recommendations on Sibanye and Harmony and Hold recommendations onAngloGold and Gold Fields.

    Gold: remaining cautious over the medium-term

    We remain cautious on gold over the medium term given the headwinds ofstrong global growth forecasts and rising U.S. interest rates. Our regression modelestimates a market premium of USD 61/oz at a gold price of USD 1,254/oz, andour forecasts assume that this market premium remains stable to higher into yearend. On our house macro forecasts, however, risks for gold remain consistentlyto the downside as we are bullish the US dollar and the S&P 500while we alsoexpect real Treasury yields to move higher. Nevertheless, we have upgraded ourUSD gold price forecasts by 4% to US$1,250/oz in 2017(US$1,260/oz in 2H),given YTD pricing has exceed our expectations due to heightened geopoliticaltensions. We have also lowered our 2018USD gold price forecast by 1% to US$1,240/oz and reduced our 2019USD gold price forecast by 2% to US$1,266/oz.

    DCF-based valuations; Sector risks include commodity & FX forecasts

    We value the companies using a DCF (1xNPV) on a sum-of-the-parts basis.Risks include commodity prices, FX, operational performance and the regulatoryenvironments in jurisdictions in which mines are situated, amongst others.Changes to price targets, forecasts and recommendations for SA-gold companiesare summarised in Figure 3. Company-specific risks and detailed changes toestimates are enclosed in the company sections of the note.