Gold has been downtrending over the last two months. The precious metal lost around $40 per troy ounce, falling from an average price of $1,314.98 per troy ounce on the London bullion market in September to the current average of $1,274.48 per troy ounce.
Waiting for some catalysts to pull the risk aversion sentiment and geopolitical uncertainty under the radar again, which are two positive factors for the metal, it would be wise to take advantage of low prices and increase your portfolio’s exposure to gold by investing in gold mining stocks since most of them are trading close to their 52-week lows, if not below.
Of course, one of the factors to consider when investing in the gold industry is choosing those stocks that have a high beta gold. The beta gold ratio measures the exposure of the gold stock's returns on the market to changes in the price of the commodity.
One of these gold mining stocks is Randgold Resources Ltd. (GOLD, Financial). If you look at the returns of the most well-known Canadian mining companies traded in the U.S., including Barrick Gold Corp. (ABX, Financial), Goldcorp Inc. (GG, Financial), Newmont Mining Corp. (NEM, Financial), Kinross Gold Corp. (KGC, Financial) and Agnico Eagle Mines Ltd. (AEM, Financial) and compare them with Randgold Resources’ returns for the first eight months of fiscal 2017, you will definitely notice one thing:
When the precious metal gained 12.9%, or $153.63 per troy ounce, on the London Bullion Market to $1,346.25 per troy ounce – the highest price year to date – Randgold Resources (+41%) and Kinross Gold (+55%) gained the most on the market.
This means Randgold has one of the highest beta gold in the industry. Therefore, an investor who wants to benefit the most from rising gold prices should take a postion in this gold miner.Ă‚
Randgold is a Channel Islands-based miner that explores for mineral resources in Sub-Sahara Africa and undertakes gold deposit advancement.
The company’s assets are located in Mali (the Morila gold mine, the Loulo gold mine and the Gounkoto gold mine), the Ivory Coast (the Tongon mine) and the Congo (the Kibali mine).
From Mali in West Africa, the company produced – on a consolidated basis - approximately 45% to 49% of its total gold production, the Ivory Coast produced about 15% to 16% of total production while the Kibali mine in the Congo contributed 35% to 37%.
The Loulo-Gounkoto mine in Mali is the company’s flagship with 690,000 ounces in annual production forecasted for full fiscal 2017, or 51% to 53% of total production. Production estimates range between 1.25 million ounces and 1.30 million ounces.
The company's third-quarter results were not impressive as a lower grade of ore mined at Loulo-Gounkoto caused a 9% quarter-over-quarter decrease in production (310,600 ounces), a 17% rise in cash costs to $667 per ounce and a 41.6% decline in EPS to 52 cents, or $60.2 million. The decline in the bottom line was also a result of higher non-cash charges for depreciation.
Despite a disappointing quarter in terms of production, there is a catalyst for the remainder of 2017. This catalyst is represented by Kibali mine in the Congo.
With some underground operation almost completed at Kibali and all other operations already set on meeting production expectations for full fiscal 2017, the Congolese mine is not only on track "to meet its 610,000 ounces" of gold production for 2017, according to CEO Mark Bristow, but exceed its guidance on gold production for the year.
Therefore, the Kibali mine and a high beta gold make Randgold one of the best investment opportunities in the gold industry at the moment.
Randgold is trading around $91.26 per share on the Nasdaq with a market capitalization of $8.68 billion. The price-book (P/B) ratio is 2.40, the price-earnings (P/E) ratio is 29.81, the price-sales (P/S) ratio is 6.37 and the EV/EBITDA is 11.55.
As of Dec. 31, 2016, and including the Massawa gold project the company is advancing in Senegal, Randgold Resources has a total volume of approximately 22 million ounces of gold reserves. The EVO – the enterprise value of Randgold Resources per ounce of gold reserve – is $375.45.
Randgold has an average target price of $111.12 per share and a recommendation rating of 1.8 out of a total of 5. The average target price represents a 22% upside to the company's current market value.
In addition, from 2017 to 2018 analysts foresee a nearly 22% growth in the miner’s earnings to an average EPS of $4.06 from an average of $3.33. The latter is the mean of three analysts' estimates. Revenue for 2017 is expected to come in at $1.28 billion.
Disclosure: I have no positions in Randgold Resources.
