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Randgold Resources - Dividend up 52%

Equity research team | 6 February 2017 | A A A
Randgold Resources - Dividend up 52%

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Randgold Resources Ord US$0.05

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Gold production hit a record 1.25m ounces in 2016. Total cash cost per ounce was down 6% on the previous year at $639. Profits rose 38% to $294.2m, with the dividend rising 52% to $1 per share.

The shares were up 4% in early trading.

Our View

Randgold has a good track record of keeping costs under control, and has offered investors a small but steadily growing dividend over the last few years - something of a rarity in the UK gold sector. That has earned the stock a lofty average rating of 3x book value, although it currently trades on 2.1x. On a price to earnings measure, the group trades on 25 times prospective earnings.

The company was a beneficiary of rising gold prices last year, which should have signalled a bonanza period for miners. However, Q2 results highlighted the risks of even the most dependable miners, in the most benign of conditions.

Disruption at two key mines hit production, and in turn dramatically increased the cost of production per ounce - as the benefits of scale fell away. In management's defence the production headwinds were arguably unforeseeable, and the issues were quickly resolved, but it left the group playing catch up for the full year.

The group's guidance for next year (production of 1.25m - 1.3m ounces and total cash costs of $580-$630 an ounce) suggests 2017 will deliver another year of rising output and falling costs. How that translates to profits will depend on the gold price, although Randgold's high quality, low cost assets should mean it is in a strong position.

Perhaps more importantly though, with no debt on the balance sheet and the dividend covered more than 4x by free cash, the group is well placed to weather the downs as well as the ups.

Full year results:

Fourth quarter gold production was 26% ahead of the third quarter and up 16% year-on-year. The flagship Malian Loulo-Gounkoto mine put in a particularly strong performance, exceeding its annual guidance by 37,000 ounces at its lowest ever total cash cost per ounce. Exploration activities saw reserve upgrades at the Loulo-Gounkoto and Sofia mines, with further expansion of the Cote D'Ivoire portfolio. Following a technical and financial study the Gounkoto super pit project has received board approval. The average gold price received was $1,244 per ounce, ahead of 2015 and slightly ahead of the level seen in the fourth quarter. The group surpassed its $500m net cash target, finishing the financial year with $516.3m of net cash in the bank.

CEO Mark Bristow commented:

"We have shared with the market our 10-year plan, which shows how we plan to sustain our profitability over the next decade at a gold price of $1 000 per ounce. It also envisages - but does not depend on - the development of three new mines over the next five years".

Unless otherwise stated, all estimated figures, including prospective dividend yields, are taken from a consensus of analyst forecasts compiled by Thomson Reuters. These estimates should not be taken as a reliable indicator of future performance.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.