"Randgold Resources: flashing below the 4000p share price level again"

I wrote a piece titled "Randgold Resources: flashing below the 4000p share price level again" which was uploaded just now to the ShareProphets website.  You can find a link to the piece (free sign-up) here.

Randgold - thoughts on the latest quarter from the world's best listed gold miner

Randgold Resources has been a favourite gold equity holding of mine for a while now.  Recently I have noted (link here) the value below the £40/share level and accordingly bought more stock during the summer (it is for full disclosure the number #1 holding in my pension fund):

The share pulled back today (c. -4% as I write) and over the past few weeks.  Of course it is convenient (and quite reasonable) to blame the fall back in the gold price as the US dollar has pushed up with the re-emergence of expectations of an imminent rate rise by the Federal Reserve...

...but more of this later. 

Onto the numbers.  I actually thought they were basically fine with record production, an enhanced net cash position and cash costs remain well under control (below US$700/ounce). So much better than certain other large cap gold companies I could mention (link here)....

So what struck me about the numbers?  For the second quarter in a row I thought the prospective exploration potential remains excellent both in Mali...

...as well as across the whole Continent at the company's operations (note the first mention in a quarterly report of the Ghana opportunity which made news during the last couple of months - post deal close hopefully before the end of the current quarter I believe there should be further interesting newsflow here). Kibali in the DRC remains a real standout.  

Otherwise what really stood out were the company's comments about the broader industry.  We all know that the commodity supercycle of a few years ago is well and truly over...

...but this chart on the gold industry generally is fascinating.  This is the deep value in the Randgold story: sustainable, growing, high grade production at a low cash cost and properly rationalised at US$1,000/ounce gold:

Of course no surprises that the stock has performed (and over longer time periods massively outperformed) and my view remains very clear.  I will buy more stock below a £40 share price.  

And macro-wise, what about the fears of an interest rate rise on gold/commodity stocks that are denominated in US dollars?  Well...it just might be a great opportunity given that the biggest fear in markets is always fear itself...

Polymetal - reiterating the stock as my second favourite gold miner

I last wrote about the Polymetal back in March.  Back then I wrote positively about the Russian focused but (at least for the shares I hold) the London-listed precious metals producer. Unsurprisingly given the fall in precious metals prices the shares have fallen since then and my previous observation that below 500p indicated value has been tested...although not by that much:

The fundamentals for the company remain akin to those I have observed previously in terms of good cash cost control and free cash flow generation...  

....as the company noted in supplementary charts in the presentation document. First on cash costs (where ruble costs and US dollar revenues were clearly a helpful combination)...

...and then on the cash flow / dividend payment side (on the latter aspect the company's board will decide at the end of the financial year whether another special dividend will be granted to help boost the total shareholder yield to 4-5%).  

I even note as per the above that Polymetal at least on the free cash flow yield during the first half of 2015 even bettered the superlative (and my #1 gold sector holding Randgold - who I last wrote up here noting their scope for a 5%+ free cash flow yield generation).  You always have to be slightly careful with a very short-term period (Kinross for example is not a gold company I am very excited about) but nevertheless consistent with the aforementioned dividend policy and ok-to-good balance sheet (even adjusting for future exploration/development spend) Polymetal is a good cash flow generator. 

They also gave solid guidance which historically they have slightly low-balled on.  

 Overall I still remain comfortable with Polymetal as my second favourite gold play.  On any reasonable recovery of the gold price the shares will trade nicely above that aforementioned 500p level.

"Randgold: the world’s best gold company (and reiterating my tip of the year)"

I wrote a piece titled "Randgold: the world’s best gold company (and reiterating my tip of the year)"
 which was uploaded just now to the ShareProphets website.  You can find a link to the piece (free sign-up) here.

GOLD is still the gold standard: catching up with Randgold

Randgold's quarterly numbers today were the usual differentiated from the sector crowd affair.  I just don't mean that their shares have outperformed the peer group (which they have - see below)...

...but even despite recent challenges like slip sliding gold price the underlying key metrics at the company continue to shift in the right direction (including a record quarterly production and attractive cash costs).  

And the benefit of this is shown in the numbers below.  Despite continuing to invest in their operations and a backdrop of falling gold prices, Randgold pushed their net cash balance up over the last year.  Such is the benefit of having profitable double digit return on capital operations at an assumption of US$1000/oz gold.  On the conference call the company even confirmed that this cash would rise (assuming US$1100/oz gold) to around US$700m by 2017 (and even at US$1000/oz gold to US$500m). That's an annualised around 5% free cash flow...not shabby at all.

I am tempted to summary conclude that the rest of the quarter as steady as she goes...but gold mining is not like that at all especially in West and Central Africa but it is testimony to the strength of the Randgold underlying local mine management teams (predominately African locals) that issues were relatively few and far between.  To update two aspects I touched on in my last write-up the Loulo area mine in Mali continues to look very prospective for them...

...and I was pleased to see in Cote d'Ivorie that some of the issues around gold recovery rates are being sorted out.  

For the London list - as I noted here at the start of the year - a sub £40 share price is a steal.  If you want to own one gold stock then surely it has to be Randgold Resources.  

What the average fund manager thinks...(part 1)

I noted a month ago (link here) that taking a slightly contrarian stance with a well-known fund manager survey suggested that:

'during the summer the trick is to be more active despite it maybe feeling uncomfortable to be so as the beach calls'

So how about this month's offerings?

No surprises where the biggest 'tail risks' are given the macro newsflow of the last few weeks...step forward Greece (aka 'Eurozone breakdown') and China. Strikingly the 'Fed falls behind-the-curve' option has completely...fallen off a cliff.  That says something about the evolution of the investment backdrop over the last month: 

Consistent with this were also the continuing observations from last month (see the link above) that:

cash levels of 5.5 per cent are at their highest levels since December 2008, and more investors than at any point since February 2008 have taken out protection against equity market falls in the next three months.

I have been really surprised in the recent bout of market volatility that gold has not performed better and reflecting how out of favour the shiny metal is for the first time since the depths of the financial crisis perceived on a net basis as undervalued.  I would agree with this.  

Back to the Federal Reserve and interest rates for the next graphic and consistent with the aforementioned fading of the fear that the Fed gets behind-the-curve is the increased focus on the fourth quarter rather than the third quarter for a first interest rate increase.  I would agree with this (in fact I still of the view that actually 2016 may be more accurate).  

Finally the US dollar and US high yield remain the two areas with the most perceived 'crowded trades' although the latter has gained a little at the expense of the former.  For me this makes perfect sense: in a world of greater creditor versus debtor tension this makes perfect sense. I am cautious of high yield too.  

 Pulling it all together growing consensus caution suggests the opportunity for stock level and thematic opportunities (like gold).  We should not forget sectors either...but more of that in part two...

"Randgold Resources: fundamentals, technicals and a Free Speech and Liberty Xmas party challenge"

I wrote a piece titled "Randgold Resources: fundamentals, technicals and a Free Speech and Liberty Xmas party challenge" which was uploaded just now to the ShareProphets website.  You can find a link to the piece (free sign-up) here.

Barrick Gold and Newmont don't displace Randgold in my affections: here's why

The last time I wrote about two gold behemoths Barrick Gold and Newmont I concluded:

'Barrick Gold remains a turnaround play.  As a large cap gold market proxy it is probably better than Newmont Mining but that is not saying too much.  Looking at these larger cap names I keep on concluding...roll on the Randgold Resources results next week'

I have waxed lyrical about the latest Randgold numbers earlier in the month (link here) but it was quite interesting to see the relative performance spreads since I wrote that report in early August last year.  Randgold (represented by its US ADR under the 'GOLD' ticker) materially outperformed Barrick Gold...

...and Newmont too (although the gap was somewhat smaller - and has closed up a little over recent weeks).  

So is there anything of interest happening at Barrick Gold and (especially) Newmont?

Well first Newmont.  There was some improvement in underlying costs...

...but whilst there was some free cash flow generation there was also fairly negligible forward growth as noted below:

Did you see the comments above about lower grades in Africa (and admittedly higher grades in APAC)?  Grade has always been one of the great strengths of the Randgold story...and weakness of the Newmont one.  Interestingly Barrick Gold had a chart on it:

The Barrick Gold grade looks a little better (although still a far cry from Randgold's multiple mines at 4+g/t) and then they throw in low production costs too:

Impressive stuff. So Barrick Gold is the share to be looking at then?  Well the numbers were blighted by impairments and there was still no free cash flow generation...

...and rather half-hearted forward production guidance ('production in excess of 6m oz in both 2016 and 2017' hardly inspires confidence).  

And then suddenly it clicked:it is amazing what you can do with numbers, especially when there are big write-downs and multiple distorting factors.  This Seeking Alpha report captured it nicely by contrasting on their methodology proper 'core costs'.  Suddenly Barrick Gold and Newmont do not scan quite so well...

Company	Q4 Core Non-tax Costs	Q4 Core Costs
Randgold (NASDAQ:GOLD)	Under $1000 per gold-equivalent ounce	Around $1000 per gold-equivalent ounce
Barrick	Around $1100 per gold-equivalent ounce	Under $1500 per gold-equivalent ounce**
Newmont	Above $1100 per gold-equivalent ounce	Above $1200 per gold-equivalent ounce
Goldcorp	Around $1200 per gold-equivalent ounce	Above $1500 per gold-equivalent ounce**
Kinross	Over $1300 per gold-equivalent ounce	Above $1800 per gold-equivalent ounce**

Hard for me not to conclude anything from this other than to prioritise (as I have so far) the Randgold holding in the precious metal space.  

"Randgold Resources – confirming that it is the gold standard"

I wrote a piece titled "Randgold Resources – confirming that it is the gold standard" which was uploaded just now to the ShareProphets website.  You can find a link to the piece (free sign-up) here.

New Gold - should I buy more of my third largest gold sector holding?

By far my largest gold equity position is in the peerless Randgold Resources which has got off to a great start in 2015.  Polymetal - my second largest holding - has also been a friend especially given its operations are almost entirely in Russia: I guess it helps to have rouble costs and a US dollar sales base...

My third holding is New Gold which has had a less successful last year - although it has not been a wipe out like other mid cap gold companies that could be named.

The headlines did not look too bad actually:

New Gold says its FY 2014 gold production of 380.1K oz. delivered on its guidance, and copper output of 101.5M lbs. exceeded production and cost guidance; 2014 all-in sustaining costs were $779/oz., $120/oz. lower than 2013

For FY 2015, NGD sees gold production up ~8% to 390K-430K oz., while copper production comes in at 100M-112M lbs., with all-in sustaining costs among the lowest in the industry at $745-$785/oz

FY 2015 sustaining capital expenditures are expected to fall by ~8% to $120M.

So what was the essential problem?  Well it is not geographic exposures because predominately they are in fairly straightforward countries for the majority of their assets.

No, if you are going to highlight an issue it is centred on the company's forward production expansion.  Take Rainy River: it looks highly attractive with a sub US$700/oz all-in sustaining cost level but I also note the low open pit grade...

...and despite being pruned back, still expensive development capex bill (for a company with around US$500m of net debt or around x2 ebitda).  

Certainly it is primed to be a remunerative development but it is not going to be easy to fund internally.

 And if that is true of Rainy River, then the bigger Blackwater opportunity is this times two.

I still like New Gold but it is riskier than the more production (and not development) oriented Randgold and Polymetal (the former has net cash on the balance sheet too).  I like the low cost orientation but acknowledge concerns about funding the development project.  When faith rises in the gold industry New Gold shares are well-primed to fly.  The better news in the interim that at least the executive team are aligned given a good share ownership.  

Given my constructive view towards the gold price this justifies the holding.  So buy more to boost my quite small holding?  Thinking about it but not diving in immediately.  

"Chris Bailey of Financial Orbit's share tips for 2015 No 1 - Reloading on Randgold Resources"

I wrote a piece titled "Chris Bailey of Financial Orbit's share tips for 2015 No 1 - Reloading on Randgold Resources" which was uploaded just now to the ShareProphets website.  You can find a link to the piece (free sign-up) here.

Charts today - active management, EM debt, consumers/oil & who is buying gold

A selection of charts that I have come across today.

A super piece in today's Financial Times on active fund management is backed up by some excellent graphics.  Despite the industry having a difficult time with active management in 2014 (on average) I am excited about such a positioning in 2015 given the volatile backdrop across global asset classes.

In yesterday's Stories we should be thinking about I mentioned emerging market debt in passing and the following two charts show this asset class is at an interesting point due to the sheer size of the sell-off...

 ...and the sheer size of the recent issuance:

 Of course two points that are necessarily inter-linked.  Ultimately with emerging markets good value at an equity level, I would make a similar conclusion on the debt too.

Lower oil prices have clearly been an issue for many commodity producing countries around the world but for consumers and companies looking to reduce input costs it is good news.  This graphic nicely updates US gas (aka 'petrol') prices:

Gold has been a positive theme for me for a number of years now and despite recent volatility I still perceive value - especially in companies such as Randgold Resources.  Another reason for being strategically positive about gold is just who is continuing to accumulate it as nicely indicated by this chart:

"Switzerland's gold referendum 'no': two ironies"

My latest post as a Yahoo Finance Contributor titled "Switzerland's gold referendum 'no': two ironies" can be found here.

Investor day insights from two recently volatile sectors

Hard to think of two more recently volatile sectors than food retail and gold mining.  Of course I am invested in both :-)   More seriously these are two sectors I see real opportunities in over the next year.

In food retail my second largest position is Morrison's the smallest of the big four UK supermarkets. I last wrote about the company here and recently they augmented those tentative improvements with a bolder trading update which highlighted better than expected performance on debt reduction (as well as a continuing sales revival).  As the share price over the last year shows we are still at the early stages of any turnaround:

So last week's investor day (it has taken me nearly a week to get hold of the presentation...) was of great interest and, I believe, importance.  There was no overt trading update other than a reiteration of prior statements, this was more about the retail underpinnings to the turnaround.

I liked the way the company started the presentation.  It is always good to be clear what you stand for...and value and a focus on fresh food is as good as anything:

The two charts that really caught my attention were perhaps the ones where they showed the greatest differentiation with the other big supermarkets - as the smallest of the 'big four' you have to be different to survive.

And then there is the manufacturing.  Certainly Morrison's vertical integration is higher than any of the other big four.  

Overall thoughts?  Interesting and a forward step but no huge surprises - and perhaps there should not be in any case.  I still feel comfortable with the turnaround and understand some of the underpinnings better.  Now it is time for delivery.  Next stop the post Christmas trading statement.  

Turning to the gold sector today Acacia (formerly African Barrick Gold) held an investor day.  Many moons ago I was invested in the then African Barrick Gold and ultimately was disappointed by the underlying business execution given that - as shown below - the reserve grade of the business was always fantastic (and even better than my favourite two gold stocks Randgold Resources and Polymetal).  

Where it all went wrong was nicely captured by this chart which showed the terrible position on the industry cost curve the old ABG was at.  Unsurprisingly when the gold price fell so did their share price.  Note though where Acacia aspire to be 'moving to the 1st quartile' with a cost profile closer (but not as good) as someone like a Randgold: 

I note throughout the presentation today the company talked about many of the softer issues Randgold (in particular) highlight such as partnership with local communities and relevant governments.  Acacia operate primarily in Tanzania (in contrast to Randgold in Mali, Cote d'Ivorie and the DRC) but have hopes to expand into countries like Kenya and Burkina Faso as noted below.  

Whilst hearing about expansion hopes the key shorter-term is cost control and taking full advantage of the underlying grade in the Tanzanian operations.  I was quite heartened by what I heard which including some fascinating insights into the importance of their position in the Tanzanian economy.  Improving relations/driving the partnership with important Tanzanian actors is all important. It is good to see they have reduced the expat workforce and proportionately now rely much more on local labour (although not to the extent that Randgold run their operations).

Overall a good effort by Acacia.  They are on my watch list for possible investment although it is clear to me that despite being an Africa focused gold operator they are no Randgold.  Still - compared to some generalised poor performers across much of the global gold mining industry - they are now of above-average interest.

Two interesting investor days in good value/opportunistic parts of the market.