Randgold Resources (GOLD, Financial) is keenly focused on two major aspects including expanding its Greenfield investments, shifting of the exploration techniques towards the Brownfield’s business, reduction of exploration activities and lowering the corporate expenditure for the year.
Investments to power growth
There’s an expanded guidance of 10% for Loulo-Gounkoto on year-over-year basis, enhancement depending on improved grade, superior recovery with still a long way to go, lowered net cash costs.
The new Greenfield investments are estimated to expand significantly with time and benefit Randgold in a long-term. Also, the improved guidance at the Loulo-Gounkoto mine is forecast to enhance the production of Gold for Randgold at reduced costs.
Randgold reported solid Operating results despite lowering of the mining profit by just 5% as against the 9% decline in gold price. Considering the recovery, there’s still approximately 2% of headroom. And Randgold is leveraging its Elution Circuit and Gravity to successfully deliver on the major expectations.
On year-over-year basis, there was 24% enhancement in production of gold at Randgold for the Gara and Yalea underground mines with full cost enhancements in recovery and grade throughput.
The improved operating results at the key mines of Randgold highlight the effective production strategy of the company and strengthen its cash flow and overall balance sheet.
Key factors that will drive growth
Going forward, Randgold estimates to gain significantly from a sharp control, enhanced flexibility and superior cost cutting by removing the margin of contractor.
There was improvement in the results at Loula with enhancement in the company profits, reflecting the shift in 60 to 40 ratio of Loula to Gounkoto and in line with the target of equating the reserves of two key ore bodies. The major shift in operations resulted in reserves enhancements of 900,000 ounces. Moreover, Randgold announced dividends of $52 million for 2014.
The increased cost-cutting efforts of Randgold are believed to prove beneficial to the company with a solid balance sheet and improved free cash flows for several other prospective key investments.
The significant parameters of the feasibility study allow Randgold with major mining activities for approximately eight years. Further, Randgold still has nearly 100,000 ounces of the remaining conversion drilling, almost making it up to a 1 million ounce mark.
Randgold’s production at Morila declined on a year-over-year basis with the operation moving towards the closure. The first quarter rolls grew on a quarter-over-quarter basis due to providing enhanced grade from the repositioning.
The solid inventory of drilling wells is estimated to provide improved top line and bottom line for Randgold, going forward.
The mining at Tongon replaced all its mined ounces from extra ore available in the pitch. This depicts solid infield drilling control at the deep LA and much ahead of the $1,000 pit which is expected to have significant growth opportunities for accelerated conversion of resources to reserves.
Overall, the first phase of the project is currently complete or linked contractors have been released from SAT, including the first hydropower station, RAP metallurgical facility and linked infrastructure.
The controlled mining at Tongon has enabled the company to cut additional costs and expand the drilling related activities at the mine and thus leveraging the mine completely.
For Phase 2, Randgold initiated the operations on the second hydropower station. It also forecasts the growth of its key underground mine to a capacity of over 3 million ounces of ore to hold from underground.
Randgold plans to expand its production at Kibali underground mine by approximately 700,000 tons for this year. Moving ahead, Randgold targets to develop the mine and successfully deliver an output of over 3 million ounces by 2018.
The successful phased development of mining and hydropower projects for Randgold is forecast to drive the company towards well-planned profitability with minimized risks and costs. Also, the enhanced expectations for the improvement in the mining performance at the Kibali underground mine seems a reality with significant overall company performance.
The consensus forecast among 29 polled investment analysts evaluating Randgold Resources Limited advises investors to hold their position in the company looking at the significantly overvaluation of the stock and hardly any growth prospects. The earlier consensus estimate advised the investors about the company outperforming the market.
Going forward, the operations at Randgold are believed to get significant push from a major partnership between the industry and its host governments, mutually benefiting the company and its key stakeholders.
Conclusion
Overall, the investors are advised to invest into the Randgold Resources Limited looking at attractive company valuations with trailing P/E and forward P/E ratios of 31.76 and 24.94 respectively, depicting decline in the costs and improvement in its operations. The PEG ratio of 7.05, above 1 suggests slower growth.
The profit margin of 21.51% is impressive. The diluted EPS of 2.51 indicate healthy shareholder earnings supported by a robust balance sheet with total cash of $84.22 million and total debt of $2.77 million only, allowing Randgold to plan for other prospective investments.
