As gold recovers, is it time to buy Centamin plc, Fresnillo plc and Randgold Resources Limited?

Is a rising gold price a signal to buy Randgold Resources Limited (LON: RRS), Fresnillo plc (LON: FRES) and Centamin plc (LON: CEY)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

This year has seen a sharp change in fortunes for gold miners. As concerns about global growth and the state of the world’s financial system have weighed on the wider market, this has sent investors rushing to the yellow metal, which is widely considered to be an insurance policy against market volatility.

And this year’s rally in gold prices has been extremely welcome news gold miners, which have spent the past two or three years hunkering down, cutting costs and writing off billions of dollars of investment as the price of gold has languished.

However, now gold prices are recovering, investors are rushing back into the gold mining sector. For example, shares in Randgold Resources (LSE: RRS) have gained a staggering 48% year-to-date outperforming the wider FTSE 100 by around 49% excluding dividends, and there could be further upside to come for the miner if gold prices continue to rise.

Sector leader

Randgold is one of the best-managed miners in the world, and the company could be the perfect play on the gold price. It has a very conservative operating model and will only take on projects with a 20% internal rate of return based on a gold price of $1,000 per ounce. This strict investment policy means the miner hasn’t commissioned expensive vanity projects, and the group has a cash-rich balance sheet with Q1 cash and equivalents of $213m.

Randgold has AISC (all-in sustaining costs) of $797 per ounce and analysts at Bank of America believe that a 5% move in the gold price could boost the company’s earnings before interest tax depreciation and amortisation by as much as 12%.

Randgold isn’t the only miner that’s outperforming the wider market this year off the back of higher gold prices. The company’s peers Fresnillo (LSE: FRES) and Centamin (LSE: CEY) are also showing impressive gains for the year.

Small-cap champion

Shares in small-cap miner Centamin have gained 75% so far this year as the company has continued to improve its operational ability, lower costs, increase output and maintain a conservative business model.

At the end of Q1, Centamin reported that it was debt-free and unhedged with cash, bullion on hand, gold sales receivable and available-for-sale financial assets of $230.7m, up around 50% year-on-year. AISC are $900 per ounce.

Centamin’s shares currently trade at a forward P/E of 13.2 and support a dividend yield of 2%.

Lagging the pack

Fresnillo has only seen the value of its shares rise by 52% so far this year, which is still an excellent gain, but the company’s shares are lagging behind some of its more operationally efficient peers such as Randgold and Centamin.

After reporting earnings per share of only 4.9p for the year ending 31 December 2015, City analysts expect Fresnillo to report EPS of 20.2p for this year. On this basis, the company is trading at a forward P/E of 53.5 and is set to support a token dividend yield of 0.8%.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »