Geithner Can't Turn This GOLD to Lead

With his first at-bat in the high-stakes bailout game, Treasury Secretary Tim Geithner struck out. Onlookers yearned for a base hit with a detailed game plan for the next round of government intervention, but instead watched helplessly as the markets were tagged out. Perhaps he might try juicing before his next appearance.

Meanwhile, precious-metals-related miners continue to round the bases as investors seek a safe haven from the perilous equity markets. Gold punched through $940 Wednesday morning, while the stock with the golden ticker symbol surged more than 10% intraday. Randgold Resources (Nasdaq: GOLD  ) released earnings and production forecasts this week that make a compelling case for owning some GOLD.

Against a backdrop of a mining industry reeling from the massive commodity price declines of 2008, Randgold delivered a 33% year-over-year increase in adjusted net income for the fourth quarter. Production rose 6% from the previous quarter to more than 107,000 ounces, bringing the yearly total to within 2% of guidance, at more than 428,000 ounces. Randgold Resources recorded an 11% cost decline to $459 per ounce, corroborating prior assertions by Yamana Gold (NYSE: AUY  ) CEO Peter Marrone and Barrick Gold (NYSE: ABX  ) CFO Jamie Sokalski that gold mining costs had peaked sometime in the third quarter.

Forecasting an enticing 15% production increase for 2009 and a further $30 per ounce cost reduction, Randgold looks very well positioned, even relative to many of its peers. Oh, and it's doubling 2008's capital expenditures to help mine development projects along. A cash position of more than $250 million and prospects for robust cash flow permit this company to reassure investors that growth projects remain intact, despite the ongoing disruptions to the global flow of credit.

Premium ore grades, with an average of 3.22 grams (or 0.104 ounces) per tonne for the 8.5 million ounces of gold ore reserves, provide another Foolish reason to consider some GOLD. Whereas each tonne of ore in Kinross Gold (NYSE: KGC  ) 's reserves contains an estimated 0.018 ounces of gold, Randgold Resources averages more than five times that concentration. The flagship La Ronde mine at Agnico-Eagle Mines (NYSE: AEM  ) boasts a more impressive grade, at 0.14 ounces per tonne, but even mines with far lower grades can qualify as world-class. Such mines include the Yanacocha mine, shared by Newmont Mining (NYSE: NEM  ) and Buenaventura (NYSE: BVN  ) .

For all of these reasons, I believe Randgold Resources could be pure GOLD.

Further Foolishness:

Gold is a hot topic on the blogs at Motley Fool CAPS. Join the free service today and see just how many Fools are taking the long view when it comes to investing in gold. The "Gold" tag at CAPS lists 32 companies, and you'll find Christopher's comments on most of them.

Fool contributor Christopher Barker sees a pot at the end of the rainbow for investors who obtain exposure to gold. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Agnico-Eagle Mines, Buenaventura, Kinross Gold, and Yamana Gold. The Motley Fool's disclosure policy has never taken steroids, period.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 12, 2009, at 1:46 AM, dachuyn wrote:

    If you want to own gold, own gold (the metal), but just for short term though. Don't own the miners. Gold keeps flying out of the mines, and you essentially have almost nothing. There are risks as well owning the miners, mostly due to social unrest in countries that the mines locate, so many producers, and that someday people may just dump gold altogether.

    People are scared and become crazy about owning gold. So, make sure you know what you do. I would put money in food producers. World population increases, and more food is needed. If there's inflation, food price goes up as well (look at AIPC earning). Food is essential while gold is almost useless.

  • Report this Comment On February 12, 2009, at 9:41 AM, XMFSinchiruna wrote:

    Gold will allow Fools to maintain the purchasing power needed to buy food when the dollar begins to lose said purchasing power.

    http://www.fool.com/investing/general/2009/02/02/the-scaries...

    http://www.fool.com/investing/international/2008/12/19/what-...

    I agree that food producers will likely do well too. :)

    Fool on!

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