What happened
Shares of Randgold Resources Ltd. (NASDAQ: GOLD) tumbled 19.8% last month after the company reported fourth-quarter and full-year results. That said, the potential for a high-cost new mining code in the Democratic Republic of Congo overshadowed those results.
So what
Randgold ended last year on a solid note, reporting a 10% increase in gold production during the fourth quarter, pushing its full-year output to 1.65 billion ounces, which exceeded its annual guidance range. Profits, meanwhile, rose 14% versus the prior year, driving a 39% jump in its cash pile to $720 million. With that healthy cash balance and no debt on its balance sheet, Randgold doubled its dividend to $2 per share. That pushes its yield up to 2.4%, which makes it among the highest-yielding gold stocks.
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However, the company also said in its earnings report that it was working with the government of Congo to stop a new mining code that its legislature recently passed. If signed by the country's president, it would subject miners to new royalties and a 50% super profits tax. Furthermore, it would take effect immediately as opposed to the old law, which exempted companies from complying with fiscal changes for a decade. While Randgold didn't think Congo's president would sign the new code, it's affirmed that it will take legal action if needed.
Now what
Randgold spent eight years and $2.5 billion in developing its Kibali mine in Congo, which it expects to produce 700,000 ounces of gold this year, making it one of the largest mines of its kind in the world. Given that investment and production expectation, the company has a lot on the line if the new mining code becomes law. Because it will likely move sharply after the country makes a final decision on the mining code, this gold stock is not without a lot of risk right now.
