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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
I have been a fan of Randgold Resources (RRS) for a long time and the latest update from the company continues to support my bullish view here.
The FTSE100 gold miner is my favourite of all those listed on the UK markets due to the way that it mines and manages its reserves, and the conservative strategy that it has used when it comes to measuring and extracting them.
Some companies have focused on extracting the lowest cost reserves at times when the gold price has been highest, thus resulting in some great profit figures at the time, but then looking far less good when gold prices have dropped and the reserves with higher extraction costs have become uneconomic! But Randgold has always taken a more balanced approach and this means that it does well even when gold is in a bear market.
Gold has pulled back a bit in recent weeks and that has seen the share price of Randgold pull back from its recent peak of around 7,600p and it closed at 6,870p on Friday, following a little bit of a rally from a low in the 6,500p range.
Last week saw the release of its first quarter results up to the end of March, and even though they weren’t quite as impressive as those for Q4 2016, they were still well up on the same quarter in 2016, and the company remains on target to meet full year guidance. This despite work stoppages at two of its mines – Loulo-Gounkoto in Mali and Tongon in Cote d’Ivoire - plus Kibali yet to be ramped up to full capacity.
Production for the quarter was up 10% year-on-year and profit was 33% higher at $84.9 million, with associated total cash cost of production reducing to $619/oz.
Compared to the previous quarter these results don’t look so impressive, but when taken in the context of lower production meaning a higher cost per ounce, and a corresponding reduction in profit, it is easy to see where the drop in performance has come from, and that it was expected anyway, given that the company remains on track to hit the guidance figures for the full year.
The company has too many projects to go through each one individually, but the drop in output for Q1 is largely due to the managing of its reserves, as I mentioned earlier in this piece, and the fact that at Kibali, for instance, it was processing lower grade ore than during the previous quarter.
Given that the market cap is nearly £6.5 billion some will argue that shares aren’t particularly cheap on a PE basis, but then the same is true for most large mining companies and they often trade at much higher PEs than other sectors do.
I personally like the fact that the company is debt-free and has around $600 million in the bank, plus it has been continuing to build its cash balance at a steady rate – it was up by 16% in the last quarter alone.
Although this type of company certainly isn’t the best if you are looking for income from a stock, it is at least still paying a dividend and it was also recently announced that the final dividend for 2016 has been set at $1 per share, an increase of over 50%, but still only yielding a little over 1.1%.
An investment in Randgold is all about where you think the gold price is going from the current level, and if you see higher then this company will continue to perform very well – if we see a return to over $1,300 per ounce then I would expect the shares to be trading in the mid-7000 range.
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