Soon we’ll not be supporting this browser anymore.
This means our website may not look and work as you would expect. Read more about browsers and how to update them here.

Skip to main content
  • Register
  • Help
  • Contact us

Randgold Resources - Continued progress sees shares rise

George Salmon | 3 August 2017 | A A A
Randgold Resources - Continued progress sees shares rise

No recommendation

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Randgold Resources Ord US$0.05

Sell: NaN | Buy: NaN | Change NaN (NaN%)
Chart View factsheet

Market closed | Prices delayed by at least 15 minutes | Switch to live prices

Half year results showed continued growth in production and profit, and a further reduction in total cash cost per ounce. CEO Mark Bristow said the outlook is positive, and the group is trending towards the top end of its 2017 production guidance range at a total cash cost below $600 per ounce. The shares rose 4.5% on the news.

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. The shares currently offer a prospective yield of 2.5%. That has earned the stock a fairly lofty average rating of 2.9 times book value, although it currently trades on 2.3 times. On a price to earnings measure, the group trades on 25.7 times prospective earnings.

While a rising gold price over the last couple of years has brought on something of a bonanza period for miners, as events in Q2 2016 show, there are risks attached to even the most dependable performers.

Disruption at two key mines hit production, and in turn dramatically increased the cost of production per ounce - as the benefits of scale dropped 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 rest of the year.

Fast forward 12 months and Randgold is back on track. The group is confident production will be at the top end of the 1.25m - 1.3m ounces guidance range. Costs look set to fall, and exploration projects across West Africa continue. Randgold's high quality, low-cost assets should mean it is in a strong position, but as ever profits will be as much a function of the gold price as factors under Randgold's control.

Importantly though, the group's debt free balance sheet has almost $600m of cash on it and the dividend is well covered by free cash flow. At the moment, the group looks well placed to weather the downs as well as the ups.

Half year and second quarter results

Second quarter operating profit of $103m was up 21% on the previous quarter, with half-year profit of $188m up 53% on the corresponding period in 2016.

Higher profits were a function of a falling cost of production and increased output. The cost per ounce produced dropped to $572 in Q2, which represents a 21% decrease year-on-year, and an 8% decrease on the prior quarter. Second quarter production rose to 341,316 oz, with increases at all the group's mines. Total output was up 6% on Q1, and 21% on Q2 2016. The average realised gold price was $1,254 per oz.

Costs were driven down by a 14% quarter-on-quarter reduction in cost at Loulo-Gounkoto, which delivered another robust performance. The flagship complex, located in Mali, was responsible for 57% of the group's production.

The preparations for the ramp-up in production at Kibali later this year were finalised. Morila's numbers were in line with plans, and the permitting process for mining the Domba satellite deposit was completed. The company's net cash position rose 11% over the half, to $573m.

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

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.