We don’t support 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 - Production slumps and profits follow

Nicholas Hyett | 10 May 2018 | A A A
Randgold - Production slumps and profits follow

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

First quarter production was 11% below the same period last year, and as a result production costs per ounce jumped significantly. Profits for the period were 22% below 2017, at $66.5m.

Production and cost guidance for the full year remains unchanged.

The shares fell 7.2% in early trading.

View the latest share price and how to deal

Our View

Gold miners are strange beasts.

The gold exposure makes them somewhat defensive - the gold price rises when things are going badly in the wider economy and so do goldminer profits. But miners often operate in the most politically volatile regions in the world, exposing investors to wild currency swings and unfavourable government policy - hardly a recipe for a relaxed investment.

An upwards trend in gold prices since late 2015 had been supporting the sector. But strikes and proposed changes to mining regulation have taken the wind out of the Randgold's sails. That's left the shares drifting downwards, and a weak first quarter means it'll be a stretch to achieve full year targets - although the company is still convinced they can be met.

These kinds of risks are inherent in emerging market operations. And with mines in Mali, Côte d'Ivoire and the Democratic Republic of Congo, Randgold is operating in some potentially tough jurisdictions.

Historically it's been one of the better names in the sector, with a particular reputation for keeping costs under control. As a result, it's been able to offer investors a steadily growing dividend over the last few years - something of a rarity in the UK gold sector. Recent weakness in the shares mean the prospective yield currently stands at nearly 4%.

A solid track record has earned the stock a fairly lofty average rating of 2.4 times book value, although it currently trades well below that, at 1.4 times. The rating reflects the challenges facing the group, but if full year targets are indeed still achievable, Randgold would look in pretty good health.

The group expects to produce between 1.3-1.35m ounces next year, at costs of $590 to $640 an ounce. High quality, low cost mines should mean it's in a strong position, although as ever profits will be as much a function of the gold price and currency fluctuations as factors under Randgold's control.

Importantly though, the group's debt-free balance sheet includes $700m of cash and the dividend is well covered by free cash flow. At the moment, Randgold looks well placed to weather the downs as well as the ups.

Register for updates on Randgold

First Quarter Trading Update

The fall in production, to 286,890 ounces in the quarter, was driven by strike action at the Tongon mine and poor grades at the huge Loulo-Gounkoto complex, both in Côte D'Ivoire.

This was partially offset by a strong result from the Kibali mine in the Democratic Republic of the Congo, as underground production continued to ramp up.

Lower production saw total cash cost per ounce jump to $720, compared to $619 in the same quarter last year. Higher costs were partially offset by an improved gold price, which was 9% higher than last year at $1,331 an ounce.

The group remains in discussions with the government of the Democratic Republic of the Congo on the development and implementation of a new mining code. No further details have been provided as yet.

Despite the disruption in the first quarter, CEO Mark Bristow is still confident production will hit the 1.3-1.35 million ounces the group guided to at the start of the year.

Find out more about Randgold shares including how to invest

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.