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Do Randgold Resources Limited, Gulf Keystone Petroleum Limited And Cairn Energy PLC’s Recent Updates Make Them Star Buys?

Shares in gold producer Randgold Resources (LSE: RRS) are up by 3% today after it released results for a record year. Production and costs for 2015 were in line with the company’s guidance, with production being at a new record of 1.2m ounces, which is 6% higher than the 2014 figure. And with cash cost per ounce being down by 3% versus the previous year, cash flow was strengthened to give the company a cash balance that’s 158% higher than at the end of 2014.

Despite this, Randgold’s profit fell from $271m to $212m and the reason for this is a lower gold price. Clearly, the company has no control over this and while it’s disappointing to record a fall in profitability, it’s one of the risks that must be factored-in by investors who buy shares in mining stocks such as Randgold.

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Looking ahead, the outlook for gold is rather mixed. It could become a safe haven if market volatility continues, but on the flip side a rising US interest rate has historically hurt the precious metal’s price. However, with Randgold trading on a price-to-earnings growth (PEG) ratio of 1.3, its risk/reward ratio seems to be highly appealing and now could be a good time to buy it for the long run.

Strong balance sheet

Also updating the market recently on its operations was Cairn Energy (LSE: CNE). It continues to make encouraging progress with its drilling programme in Senegal and remains well-funded from its existing financial resources. In fact, Cairn has a net cash position of $603m. With investors being rather uncertain about the financial outlook for the oil and gas industry, such a strong balance sheet could prove to be a major differentiator for Cairn versus its peers over the medium term.

However, for investors seeking to buy companies within the resources space, there are a number of companies that offer financial stability as well as a high degree of profitability. Although Cairn has a strong asset base and considerable long-term potential, it may be prudent to stick to more established companies that have black bottom lines at the present time.

Near-term risks

Meanwhile, the outlook for Gulf Keystone Petroleum (LSE: GKP) continues to be challenging. It remains a highly appealing oil and gas play in terms of its asset base, but its near-term future remains risky and highly unpredictable.

Although the prospects for receipt of cash payments for oil exports have improved in recent months and have eased the company’s cash flow, there’s still major geopolitical uncertainty in Northern Iraq/Kurdistan that makes Gulf Keystone a relatively-high-risk play.

As with Cairn, there are many resources companies that offer lower risks than Gulf Keystone at the present time, and which also offer excellent capital gain prospects due to their low valuations. For most investors, such companies could prove to be better buys in the long run, even though Gulf Keystone does have the potential to become a highly profitable entity.

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Peter Stephens 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.