SA Gold:outlook for 2018,Recovery in cash flows into 2018

Upgrade AngloGold, Gold Fields to Buy, Harmony to Hold on higher Rand Gold

    We update our Rand forecasts in this note by an average of 13% over 2018E-23Eby changing our inputs to a blended 30- and 90-day trailing average. For 2018E weuse R14.22/USD. This leads to an average 27% increase in our Rand-based pricetargets and we upgrade AngloGold and Gold Fields to Buy recommendations;

    and Harmony is upgraded from a Sell to a Hold. We forecast the gold sector tosee a recovery in free cash flow in 2018E from a depressed level in 2017E, drivenby both improved margins and reduced project capex (2017was a particularlycapex-heavy year). Harmony is slightly behind the curve in this regard, withthe US$300m acquisition of Moab Khotsong still pending. We forecast Sibanye-Stillwater to deleverage to below 1x net debt to EBITDA (from current c.2.3x) bythe end of 2019E on both higher EBITDA from Stillwater and cash generated;

    however, we have them on a Hold recommendation (R20ps PT) as we do notforecast the palladium price staying above platinum over the longer term. At spotwe derive a R30ps PT for Sibanye-Stillwater and palladium bulls may well beattracted to this deleveraging story as the Blitz project ramps up at Stillwater inthe US. Key events to watch for in 2018include progress on projects like Kibali,Obuasi, Salares Norte, Stillwater Blitz, Hidden Valley and Gruyere; while Harmonyhas guided that it will seek US$200m of equity funding to complete the acquisitionof Moab Khotsong.