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.
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.
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