Gold miners have not quite recovered their lustre since the yellow metal nearly reached $1900 back In 2011, but there is still value to be found in parts of the sector.
Unlike many gold miners, Randgold has managed to increase production while keeping costs low. By maintaining a sole focus on Africa, it has not been an easy ride, with political instability a frequent feature of operations, but production has still risen, up 15% in 2013, with the likelihood of further increases as new mines in places such as Mali and the Democratic Republic of Congo come on stream.
This concentration on Africa has allowed the company to pick up new locations, and has given it an insight into finding low cost assets that provide high grade ores. Many miners will simply look to buy any location that is going cheap, but Randgold’s method has provided it with a stable of consistent performers.
Earnings growth is projected to be 8.6% for the year, with sales up 4.8%. Although 2013 was a tricky year, the future seems to offer more stable growth. Gold miners are currently trading on relatively high price-earnings ratioss, but Randgold’s is a more modest 27.9, making it more compelling than the broader sector. The dividend yield is 0.59%, meaning it is not exactly a major income stock, but the company’s focus on maintaining low costs despite a declining gold price mean this is a prudent move.
Overall the company’s shares have recovered well from the five-year low of around £36.50 seen at the end of 2013 and so far this year are up an impressive 33%. By comparison, the FTSE 100 is 0.6% down. The break above the 200-day moving average in mid-June will have brought the company to the attention of technical buyers, and now the focus is on sustaining a push through the year’s high of £53.