Should You Buy Randgold Resources?

LONDON -- I believe that Randgold Resources'  (LSE: RRS  ) (NASDAQ: GOLD  ) steady share-price decline is an excellent buying opportunity.

The gold miner should continue to boost production significantly over the medium term, while extensive exploration work across Africa is set to yield supreme returns over a longer time horizon.

I also reckon that a combination of rising inflation -- exacerbated by ongoing central bank monetary action -- and patchy macro-economic indicators should push the value of gold higher over the medium term, boosting Randgold's bottom line.

These shares have collapsed almost 30% from mid-October's all-time high of 7,775 pence, and I consider them to be vastly oversold. Indeed, Société Générale plastered an 8,000 pence target on the company's stock just last week, underlining the great growth potential on offer.

Gold record breakers
Randgold announced last month that it churned out record gold production during 2012.

Output of 794,844 ounces was up 14% from 2011 and came despite a number of production issues, including power outages. The increased output allowed the company to post a record profit last year of $511 million, up 16% from 2011.

Randgold owns an enviable portfolio of assets along the red-hot gold belts of Mali, the Côte d'Ivoire, and the Democratic Republic of Congo (DRC). The company is looking to boost output at its flagship Loulo-Gounkoto complex in Mali to 590,000 ounces in 2013, from 503,224 ounces last year, with sizable ramp-ups scheduled at its other assets during the current twelve-month period also on the agenda.

Further out, the company remains on track to produce the first gold at its colossal Kibali project in the DRC during the fourth quarter of this year. Randgold has said that it hopes to produce 600,000 gold ounces per year from this project alone between 2014 and 2023.

Get ready for gold-lined earnings growth
City analysts expect Randgold to significantly boost earnings-per-share growth in coming years. Following the 12% rise reported during 2012, a 20% advance is forecast this year to 374 pence, with an additional 37% rise in 2014 to 514 pence expected.

This excellent growth potential makes the gold producer great value for money at current levels. A price/earnings readout of 19.1 will fall to 14.4 in 2013, according to broker consensus, before slipping further to a more than reasonable 10.5 next year.

Randgold's price/earnings to growth multiple accentuates its position as a bargain stock -- this is projected to fall to 0.7 and 0.3 in 2013 and 2014 respectively, down from 1.6 last year. Any value below one is generally considered great value for money.

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Related Tickers

9/30/2016 4:00 PM
GOLD $100.07 Down -2.13 -2.08%
Rand Gold Resource… CAPS Rating: ***
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Randgold Resources… CAPS Rating: No stars