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

A pastel colored growing graph with rising rocket.
Investing Articles

How much passive income could I make for every £1,000 invested in Aviva shares?

Even a relatively small investment in Aviva shares could generate much greater passive income, particularly if the dividends are reinvested…

Read more »

Close-up of British bank notes
Investing Articles

I’m considering 100 shares in this FTSE 250 gem to aim for £300 a month in dividends

Mark Hartley outlines why a lesser-known banking stock from the FTSE 250's worth considering for an income portfolio in 2024.

Read more »

Investing Articles

History suggests these UK shares might soar if interest rates are cut in August

Some UK shares could rocket if interest rates fall from its 5.25% high next month. And there's one our writer…

Read more »

Female Doctor In White Coat Having Meeting With Woman Patient In Office
Investing Articles

Here’s why H1 results could boost the AstraZeneca share price

The AstraZeneca share price has been a success story in the past five years. With H1 results due, can it…

Read more »

Investing Articles

£17,365 in savings? Here’s how I’d use it to target a £6,700-a-month passive income

Here's how a lump sum investment could pave the way for me to make a four-figure monthly passive income in…

Read more »

Investing Articles

Down more than 10% in 6 months, Fools are backing these 5 UK stocks to reverse that – and then some! – by 2025

Some of our UK free-site writers have put forward their candidates for turnaround stocks!

Read more »

Investing Articles

Down 23%! Should I buy more CrowdStrike shares for my Stocks and Shares ISA?

Sometimes bad news can be good news for long-term investors. But is that the case for CrowdStrike in relation to…

Read more »

Investing Articles

2 UK shares near 52-week lows I’m considering snapping up

These UK shares are loitering near, or at, 52-week lows. Are these prime opportunities for our writer to boost her…

Read more »