Randgold Resources Ord US$0.05 (RRS)

Company overview

Randgold Resources is a Jersey based gold mining business operating mainly in Mali, West Africa. It is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index. The company was established in 1995 and was first listed on the London Stock Exchange in 1997. In 2000 it commissioned the Morila mine and in 2005 went on to commission the Loulo mine, both based in Mali.

HL Comment (6 February 2012)

In the wake of a 50% plus rise in the share price over the last year, Rangold reported strong fourth quarter and full year 2011 results. Aided by increased production and a buoyant gold price, fourth quarter profitability rose by 323% to 136.2 million US dollars compared to Q4 2010. Over the full year, profitability increased by 259% to $433.4 million. The chief executive noted that "the company effectively opened two new mines over the year." Production for the year rose by 58% to 696 023 ounces, reflecting increased contributions from the Loulo complex in Mali (which includes the new Gounkoto mine), Tongon in Côte d'Ivoire and the Morila joint venture, also in Mali. As a result, the company was rewarding shareholders with a substantial dividend increase. An annual dividend of 40 US cents was proposed, an increase of 100% over 2010.

Negative Points:

• Randgold reports in US dollars. However, operating costs are split 40:60 between the Communaute Financiere Africaine franc (CFA) and the US dollar. The CFA is fixed against the euro, therefore, depreciation of the US dollar against the euro would cause the cost base to rise and could negatively impact future earnings.
• Total capital expenditure for 2012 will remain high at approximately US$660 million, which will be invested in the anticipated start-up of construction at Kibali, the programmes to unlock more capacity at Loulo and Tongon and in exploration across the group.
• Unforeseen operational problems at its mines, higher than expected costs or adverse weather conditions could all have a detrimental effect on production.
• The company currently faces high political risk in the Ivory Coast, where one of its mines, Tongon, is located.
• Unlike other metals, gold has few industrial uses. A recovering global economy could see Randgold lag other raw material producers.

Positive Points:

• The company forecast production growth in each of the next five years, with group production for 2012 estimated to be 825 000 to 865 000 ounces - a 19% increase over 2011 at the lower end of the range. This growth is projected to be driven by better throughput and grade at the Loulo/Gounkoto complex.
• Management is targeting total cash costs per ounce, after royalties, of under US$650/oz for 2012, while costs are forecast to reduce to between US$500/oz and US$550/oz over the next five years.
• Despite 2011's substantial investment in capital projects, cash in hand increased by 33% to US$487.6 million year on year.
• The company has proposed a dividend increase of 100%.
• Concerns that many central banks across the world are attempting to increase exports by lowering the value of their currencies and inflating away national debt by printing money, persist. Unlike currency notes, the stock of gold cannot be increased quickly, with the metal remaining a historic store of value.

Consensus:

On balance, market consensus opinion indicates a strong hold.

All yield figures are variable and not guaranteed.

Fundamental Data

Values are quoted in the stock's local currency: US dollar.