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Have you got enough Randgold?

By Chris Bailey | Tuesday 6 February 2018

Disclosure: I own shares in one or more of the stocks mentioned. 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 know, I know, you have bigger matters to worry about with the current bout of stock market volatility impacting your wealth. It impacts mine too - especially the 6% fall of my largest holding Randgold Resources (RRS) after a full year results publication that saw record production, lower cash costs, fantastic grade, super sounding prospects... I could go on but regular readers know that I have an almost perma love-up with the FTSE-350's largest pure-play gold producer.

I was not lying about all of the attributes above and could even add an enhanced net cash balance and a doubled dividend to boot. Throw in that, compared to all the other excitements in the world, Randgold's underlying commodity - gold - has been a paragon of relative stability in recent days. However the wise among you are waiting for something else given a 6% odd fall on Monday in a share which superficially had good results and extracts a commodity which is typically a go-to in times of strife. In a pre-earnings release on Sunday evening the company also noted:

'(Randgold) is engaging at the highest level with the government of the Democratic Republic of Congo to head off the enactment of a new mining code which the company believes will severely limit the growth of the mining industry in the DRC as well as the country's own economic prospects. The new code was passed by both houses of parliament last week but still has to be signed by the president before it becomes law'

Hmm. Randgold operates of course in Africa and historically its moves and associations in both West Africa (Mali, Cote d'Ivorie, Senegal) and more latterly in the DRC have been characterised by close and trusting relations with government. I remember many moons ago the CEO of the company regaling an analyst meeting with the observation that after a coup in Mali the alleged first call from the new regime was to the company pleading with it not to stop its mining activities as it was the largest taxpayer in the country. Randgold is not as material a player as this in the DRC but it is an important player which has turned around the problematic Kibali mine it took on in a joint venture structure with aplomb.

What clearly hacks off Randgold is that it feels the DRC government has done a 180 degrees turn, namely: '(W)hen Randgold and AngloGold Ashanti bought the project which became the Kibali mine, we sought and received a formal written declaration from the DRC government which entrenches our rights under the 2002 code and confirms that the law would be honoured in respect not only of Kibali but also any permit renewals'.

Smaller cap mining investors have, of course, seen all of this before but countries annoy the big boys today at their peril given they are sources of tax revenues and employment and - most importantly from any strategic perspective - know-how. As for the Kibali/DRC operations for Randgold, they account for between a quarter and a fifth of its business depending on the metrics and are nicely profitable and have retained growth angles. What I think troubles Randgold is undoubtedly the scope for renewals to be crimped...and this is why it is lobbying on this manner, hence the firm words above. As they noted in a Q&A session yesterday with analysts, nothing is fixed until the President signs it off.

Randgold remains though very on track - and not just because production growth is up for a seventh year or cash costs are at a six year low plus all the super strong prospective production and balance sheet issues noted above. I like the continued discipline of focusing on the need for double digit returns on any investment. Yesterday's sell-off looks much more an opportunity than a threat. For me the question you should be asking - particularly in times of strife and general poor value in global large cap markets - is 'do I have enough - or even any! - Randgold?'

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