Centamin PLC & Randgold Resources Limited: Two Golden Investment Opportunities

I have long believed that gold is an investment that survives purely on its reputation. It has minimal practical uses, aside from jewellery. Supposedly a store of value, its price is subject to wild swings, as anybody who bought in 2011 when the price neared $2,000 an ounce (and was said to be heading for $4,000) can testify. It pays no interest, and its price can go nowhere for years. If the modern world really went into meltdown, tinned beans and a bazooka would be more useful than a gold bar.

All that glisters

I just don’t get it. Maybe the message is getting through to gold bugs, because the price is down almost 15% over the past troubled year. It has risen only slightly despite the crazy start to 2016. Gold may be the most overrated investment on the planet, but what about gold miners such as Centamin (LSE: CEY) and Randgold Resources (LSE: RRS)?

Neither will have made you rich over the last five years, with Centamin down 50% in that time, and Randgold broadly flat. Yet both have staged a share price recovery in the last six months, returning 22% and 26%, respectively. Could this have further to run?


FTSE 250-listed Centamin recently posted a 16% rise in full-year production to 439,072 ounces, at the top end of its guidance of between 430,000 and 440,000 ounces for 2015. Productivity should improve in 2016, with forecast production from its Sukari Gold Mine of 470,000 ounces at an all-in sustaining cost of $900 per ounce. At time of writing, gold trades at $1,111 an ounce.

Centamin has an edge over physical gold in that its pays a dividend, currently yielding 2.9% covered 4.5 times. It also boasts forecast earnings per share (EPS) growth of 19% this year. At seven times earnings, the valuation is surprisingly cheap and this could tempt people who are more bullish about gold than I am.

Randgold Resources

Wednesday 20 January was a bloodbath for the market generally and mining stocks in particular, with big names such as Anglo American and BHP Billiton falling more than 7%. That day, Randgold was almost the only FTSE 100-listed stock that rose, as gold ticked higher in the panic. It stands out from the crowd in other ways too. It’s that rarity, a debt-free mining company, and a profitable one at that, making $149m in the first nine months of its financial year.

Production has hit record levels while net cash has increased significantly from $109m to $168m, further strengthening its balance sheet. This well-managed company has been able to shrug off the disappointing gold price performance, and EPS are forecast to rise a healthy 21% this year. However, at 27 times earnings, there’s a high price to pay for this solidity.

These are both steady businesses but there’s one thing they can’t control: the gold price. This has been hit by the strong US dollar and falling physical demand from Asia. That said, it should be supported by a wider slip in gold production, due to a lack of new developments and delays on existing projects. Further stock market madness could get the gold bugs buzzing again and I would rather play this by buying mining stocks than the physical stuff. But I still think there are better prospects elsewhere in today’s troubled market.

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Harvey Jones 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.