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AngloGold, Gold Fields stock is 'exceptionally cheap,' JP Morgan Cazenove says

Diversified miners Anglo American PLC and Glencore PLC and gold majors Randgold Resources Ltd., AngloGold Ashanti Ltd. and Gold Fields Ltd. are all trading at a discount compared to their peers, according to J.P. Morgan Cazenove.

The analysts rated all five companies "overweight," meaning these stocks are expected to outperform the average total return of the stocks of their peers over the next six to 12 months.

J.P. Morgan Cazenove said in a July 17 note that Anglo American and Glencore are both trading at a discount of more than 20%.

For Anglo American, the analysts retained an "overweight" rating with a 2,110 pence price target on the stock, expecting the company's asset disposal program and strong commodity prices to have a positive impact.

"While we remain cautious on commodity prices and the South African operating environment, we believe valuation is now compelling, while balance sheet risk has been diminished by asset sales and stronger-than-expected commodity prices," the analysts said.

Discussing its second diversified pick, J.P. Morgan Cazenove said Glencore has arguably the strongest balance sheet in the sector, which gives it "strong scope to continue its growth through both organic and M&A opportunities."

"Glencore offers strong exposure to structural growth themes including electric vehicles and has latent capacity in both copper and zinc to feed back into tight markets," the team wrote, prompting the retention of an "overweight" rating.

The target price on the Switzerland-based miner's stock is 550 pence, with the analysts noting that its industrial division is trading at a discount to Rio Tinto and BHP Billiton Group.

J.P. Morgan Cazenove called AngloGold Ashanti one of the cheapest South Africa-listed gold companies in terms of the enterprise value-to-EBITDA ratio and assigned it an "overweight" rating.

The analysts said the Johannesburg-listed miner is trading "at an extreme discount to international gold peers" and "at a significant discount to its own average historical traded multiple of 5.4x." AngloGold has a target price of 230.79 South African rand per share.

The high-cost South African operations only comprise about 15% of the company's estimated 2018 production, but the "unique labor, social and political responsibilities may prove to be a drag on the AngloGold's equity rating for the foreseeable future."

Gold Fields, another Johannesburg-listed gold miner, which has most of its operations outside of South Africa, was assigned an "overweight" rating.

The analysts said Gold Fields' share price has been underperforming since 2016 compared to peers due to investor concerns over international assets as well as expansion problems at its South Deep mine in South Africa. Gold Fields has a 76.19 rand price target on its shares.

The team noted that the company is more geographically diverse than its South African peers and that by 2020, about 80% of its production is expected to be sourced from lower-cost assets in Australia, Ghana and Peru.

"The share price carries a cheap option on even limited success at South Deep, higher gold prices, or a weaker rand," the note said.

The J.P. Morgan Cazenove analysts also retained an "overweight" rating on Randgold, with a target price of 7,100 pence per share, on expectations that an interim agreement on a new mining code in the Democratic Republic of the Congo will improve the company's position.

According to the note, the gold miner has been de-rated upwards of 20% since the start of 2018 due to the DRC's operating environment, but its "valuation and cash flow multiples now stand out as compelling."

Downside risks, however, include the invocation of the 50% super-profit tax in the DRC and unexpected political risks in Mali, Cote d'Ivoire and the DRC.