Gold Fields 'Oversold,' RBC Capital Says

In a report published Tuesday, RBC Capital Markets analyst Jonathan Guy upgraded the rating on

from Sector Perform to Outperform, saying that the shares appeared oversold. The price target was maintained at ZAR55. Gold Fields reported weak results for 1Q, mainly due to operational issues at South Deep and grade declines. Analyst Jonathan Guy believes, however, that the disappointing performance is now reflected in the share price. In the report RBC Capital Markets noted, "Outside of South Africa we expect to see an improvement in both costs and production as the year progresses as Q1 weakness was driven by planned grade scheduling. We currently value South Deep at US$224 million and assume that it misses guidance of 229koz in 2015, with production of 208koz and peak production of 400koz in 2017E." "Unlike the majority of the South African gold mining industry, which is now entering wage negotiations through the Chamber of Mines GFI has already reached a three-year agreement with the 3,500 workers at South Deep - the company's only operation in the country. Whilst the 10% annual increase in each of the next three years appears relatively high, it does reduce the risk of disruption to the operation," Guy wrote. The company had expressed its interest in acquiring the Cowal mine in Australia from

. The asset was purchased by another company for US$550 million. Guy believes that Gold Fields' decision to not aggressively bid indicates "a degree of discipline in the company's M&A strategy."