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Gold producer Randgold Resources (LSE, RRS) saw third quarter profits fall flat on a year ago despite an improvement in costs and output. In comparison to the second quarter profits fell which has served to dent investor confidence.
Randgold Resources boasts that in its seventeen-year existence it has discovered five world-class gold deposits – one every three to five years. The general manager of exploration, Paul Harbidge, states that: “we are working hard to find the next one”.
The group has also demonstrated an impressive operational skill set with four producing gold mines in West Africa. In Mali the company has the Morila, Gounkoto and Loulo mines and in Ivory Coast the Tongon mine. There are two development projects set for production which are Massawa in Senegal and Kibali in the DRC.
Q3 saw weak results as output fell 3% and total cash costs rose 5% on Q2 which led to profits dropping by 12.5%. Profits missed expectations and damaged Randgold’s “never miss” reputation which has caused the stock to weaken but the medium-term outlook remains robust.
Looking at the near term growth prospects, Randgold’s output is set to rise from just over 0.8m ounces this year to 1.3m ounces in 2014 and then nearly 1.5m ounces in 2016. This represents over 50% growth over two years and then over three-quarters growth over four years.
Output is set to start falling back from 2018 but Randgold’s successful exploration and development record may mitigate this. The group could also turn to acquisitions with a number of early stage explorers in West Africa lacking the finance to develop their own projects.
The projections for Randgold also show an increase in the average gold grade from around 3 grams per tonne this year to 3.5 grams per tonne from 2014 to 2016. This reduces cash costs which differentiates the group from gold miners that are seeing rising costs.
Thus the medium term outlook for Randgold is robust with production set to increase by over three quarters to 2016. Costs are also set to fall which will deliver strong profits growth for the group.
Looking at the third quarter performance and profits for Randgold came in at US$1.12 per share which compares to US$1.28 in Q2 2012 and US$1.17 a year ago. Meanwhile cash and cash equivalents stood at US$0.44bn at the end of September.
Randgold has an exciting few years ahead of it as its Kibali mine in the DRC comes on stream in a year and its Massawa mine in Senegal in four years. It is no surprise, then, that Randgold has a premium rating among gold miners even if the shine has been taken off it with the stock’s recent weakness.
This report was produced by Senior Research Analyst, Andrew Latto
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