The gold market is challenging. The weak gold market is affecting almost every company in the industry. Moreover, the gold weakness isn’t showing any signs of fading away soon. But Randgold Resources (GOLD, Financial) is confident of delivering good results in the future due to its focus on delivering profitable mines. In addition, the company sees other growth opportunities too.
Making impressive moves
Randgold is pleased seems in line with its guidance of year-over-year performance. It is seeing good business across its mines. It is seeing good progress across its Kibali offering. In addition, it is seeing outperformance across its Loula-Gounkoto. This seems well in line with company’s expectations. Further, the recovery measures that Randgold took in the past to improve substantial performance at Tongon is also showing positive signs, giving Randgold a confidence of better performance in the upcoming quarters.
The company has taken many cost effective initiatives that seems to be working well for it. This is helping Randgold to further reduce the total cash costs. The company is in a good market position despite the lower gold costs. These initiatives seems to be helping the company for a long run. This will help Randgold to strengthen its long-term prospects.
Improving profitability
Randgold is now focusing on various aspects to improve its profitability. It is now shifting its focus on aggressive mining around Yalea, Gara and Gounkoto. The main objective of the company is to make a long-term underground infrastructural commitment with this initiatives, seeking long term profitability. In addition, Randgold is counting on Loulo mines as it is seeing commendable reduction in the total cash costs as these underground mines are showing good growth in the ore delivery. But now the main focus of the company revolves around improving the cash flows. For this it is striding to lower the development cost which will improve its profits. But this seems challenging for Randgold due to the soft gold market.
Moving on, Randgold has spent a lot of money on Gorumbwa which used to be a small drilling pit. The pit is now showing positive production signs, and the company is now citing around 400,000 ounces of resources. With these abrasive ore production Randgold is expecting good contribution from these to its top line in future.
Randgold is on track for running a 2-phased approach which it is also discussing with the Senegalese government and the company is thinking to be in a full phase of this within 2 to 3 years. It is excited about this opportunity and thinks it can also help Randgold to improve its financials.
Conclusion
Moving to the financials, the stock is at decent valuation levels with a trailing P/E of 23.28. Its earnings are also growing decently with a forward P/E of 20.23. But the company’s long term prospects are disappointing. Its earnings are showing poor growth with a CAGR of just 1.90% which is too low as compared to the industry average of 21.31%. Considering all these facts it can be seen that the company’s earnings are declining in the long term. However, the stock is profitable now at these valuation levels. So it is a good pick as of now.
