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What Does The Future Hold For Randgold Resources Ltd, Fresnillo Plc, Centamin Plc & Petropavlovsk Plc?

With gold prices having recovered moderately throughout the third quarter but uncertainties remaining over where they will go next, I take today to impart a few observations on some of the UK’s most popular precious metals producers.

Randgold: Best In Class

Randgold Resources (LSE: RRS) continues to focus on the exploration of options to acquire further mining rights in the Democratic Republic of Congo (DRC), with a view to ramping up production past 2014/15 levels.

While the group strategy is volume-driven, its cash cost per ounce is still important and, in this regard, Randgold has remained a sector leader in recent periods, with a $650-700 per oz cost of production. It also maintains a ‘best in class’, debt-free balance sheet.

Over the medium term, management’s volume strategy may enable Randgold to grow; however, in the current year, the average price of gold has been just $1150. This is almost $100 below the average realisation for Randgold in the 2014 period, which may prove an insurmountable hurdle for earnings at the full year, implying that the shares may not quite be out of hot water just yet.

Nevertheless, if I as an investor were looking to take a punt on a gold miner, Randgold Resources would probably be among my first choices… I’ll explain why below.

Fresnillo: More Volatile

Gold and silver miner Fresnillo (LSE: FRES) is also a reasonably low-cost producer, with its cost of production at roughly $900 and $8 for the precious metals, respectively.

However, the group is leveraged with £790 million in debts and an asset base that is subject to devaluation and impairment, given its double exposure to both precious metals prices as well as the price of the Mexican peso.

In the first half, a 5% devaluation in the peso relative to the dollar caused non-cash charges of just over $15 million, which is equivalent to 20% of group earnings for the period, or roughly the same amount as it spent on dividends.

While investors may still be able to expect reasonable returns, a significant portion of the business’s assets being non-US dollar denominated assets mean that this journey could be a little more volatile than the average.

Centamin: Beginning To Bounce Back

Centamin (LSE: CEY) shares have continued to show signs of a tentative recovery over the last 24 months, in contrast to much of the remaining sector, as the group’s long-running dispute with the Egyptian government draws closer toward a resolution.

The group also continued to increase production during the first half of 2015 while noting the positive results of exploration activity in Ethiopia, Burkina Faso and Ivory Coast.

Centamin is another producer that enjoys an attractive $700 cash cost of production; however, its exposure to strife-ridden Egypt and exploration activity in other volatile regions make it a high-risk play for any investors.

Petropavlovsk: High Risk/Reward

Petropavlovsk (LSE: POG) is one of those gold miners to have suffered greatly as a result of debts accrued during the boom years. However, a rights issue and restructuring now appear to have provided investors with a glimmer of hope.

Group debt now sits at just under $750 million, down from just over $1 billion in December 2014, a reduction that should make it easier for the group to manage its remaining liabilities.

POG is another company with a low $700-$800 per ounce cost of production which, when combined with the recently improved balance sheet and management’s commitment to lower costs, could mean that the risks surrounding these shares are now toward the upside.

However, investors would do well to remember that the group operates exclusively in Russia which means that, in addition to solvency risks, there are also geopolitical factors (future sanctions) to consider.

Nevertheless, for those with the requisite tolerance for risk, Petropavlovsk is beginning to look like a classic recovery play and may be the opportunity that you have been looking for!

Whether you agree with me in relation to Petropavlovsk or any of the above companies, if you are actively looking for a way to increase your returns then this free report could seriously help you to both shelter and grow your wealth throughout the next boom-bust cycle and beyond!

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James Skinner 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.