Tuesday, June 7, 2016

Randgold - A Perfect Gold Miner?

Yesterday I presented a way of assessing the quality of a miner, using Banro Corp as a negative example. 

Today I would like to use the same method to show the opposite thing - an African miner operating excellent assets. I think everybody interested in the gold sector surely knows Randgold Resources. In my opinion it is one of the best world's miners (maybe the best). Its quality lies in excellent assets the company owns. 

To remind my readers - Randgold operates four mines, of which two are fully consolidated in the company's financial statements (Tongon and Loulo - Gounkoto complex) and the other two are accounted for using an equity method of accounting (Kibali and Morila). 

To keep things as simple as possible, below I present revenue delivered by all four mines per ton of ore processed, using a fixed price of gold realized in 1Q 2016: 

The chart shows that if between 2012 and 2015 Randgold were selling its gold at a fixed price of $1,187 per ounce (the average price realized in 1Q 2016) it would have increased its revenue from $88.4 per ton in 2012 to $105.7 per ton of ore processed in 2015. In my opinion, this assumption confirms the high quality of the company's assets.

Note: The last drop from $105.7 to $96.4 should be treated as a one-off. 

Now, cash costs of production:

Here it is easy to spot that between 2013 and 2015 Randgold cut its cash costs of production from $53.9 to $44.2 per ton of ore. 

Summarizing - higher revenue per ton of ore processed plus lower cash costs result in higher margins delivered by Randgold's mines.

Indeed, Randgold is the best in class...

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