Under African Skies: A Gold Miner Thrives in Hard Times

Great assets, a well-developed pipeline, savvy leadership and a seeming ability to weather all manner of geopolitical storms: that’s Randgold in a nutshell. So what’s the play? At current gold prices around $1200, and assigning the company a 10 percent discount rate given where it operates, we derive an NAV per share of $79.11. Of course, only a bull on gold would buy the shares. So assuming a seven percent discount rate in a more bullish gold market, with gold at $1,500 gold, NAV per share climbs to $114, at $1,800, it hits $145, and at $2,000 $165. By that time, gold stocks will likely be at premiums to NAVs, assuming Randgold remains an independent company. We note as well that with the recent gold rally and the company’s positive earnings, Randgold’s share price has appreciated significantly as we have gone to press. Gold stocks are volatile, so investors should make sure to pick an entry point they are comfortable with. Of course, once the real bull run has started there won’t be another chance, but it’s impossible to know if that has happened yet.

West Africa can look like a very bloody question mark as a place to house a company’s bread-and-butter assets. But other miners large and small have taken far more serious blows in supposedly far less risky locales. Eldorado shut down its Greek operations and Gabriel has hit a roadblock in Romania; Newmont struggles with permitting in Indonesia and Barrick will be writing down hundreds of millions on a stalled project in Chile. And don’t forget the bitter lesson Anglo American learned from the protests around its proposed Pebble mine — located in Alaska, no less. The company pulled out in 2013. Mining is a tough business no matter where you are. But sound strategic vision and execution matter just as much as, if not more than, location. If you want exposure to a rising gold price and the mines that Africa has to offer, Randgold seems like a well-captained ship to navigate the region. And if you believe gold will take off, the value the company presents will leave the politics far below.