Are 88 Energy Ltd, Randgold Resources Limited And Antofagasta plc Too Risky To Buy?

One of the surprising investment stories of 2016 has been the performance of gold. The precious metal was expected to struggle this year due to the prospect of a rising US interest rate which has historically behaved inversely to the price of gold. However, with US interest rates now not expected to rise as quickly as previously thought, the price of gold has soared by around 15% year-to-date.


This has been good news for gold miner Randgold Resources (LSE: RRS), which has posted a share price rise of 53% since the turn of the year. And with gold being viewed as a relatively safe asset, further volatility in global stock markets could lead to an even higher price for the precious metal.

As such, Randgold Resources could be seen as a counterweight to market uncertainty, which means that it could be a sound buy for investors seeking to diversify and reduce the overall risk of their portfolios. And with Randgold Resources trading on a price to earnings growth (PEG) ratio of 1.6, it still seems to offer good value for money despite its excellent share price performance of late.


With Antofagasta (LSE: ANTO) also mining gold, the same can be said of it with regards to its appeal in times of uncertainty. Alongside gold, Antofagasta mines copper and molybdenum and this provides it with greater diversity than many of its pure play mining peers. This could provide it with reduced risk in the long run, although its decision to sell-off non-core assets such as its water services business has concentrated the company on mining activities.

Despite this, Antofagasta’s asset sales have left it in a stronger financial position and this should help it to deliver more robust and resilient performance in the long run. With the company’s shares trading on a PEG ratio of 0.4, they appear to offer a very favourable risk/reward ratio. Furthermore, with Antofagasta having a yield of 2.1%, it continues to offer superior income prospects compared to a number of its mining sector peers.


Meanwhile, 88 Energy (LSE: 88E) is clearly a smaller business than either Antofagasta or Randgold Resources and that in itself can make it a riskier proposition. Furthermore, unlike the other two companies, 88 Energy has no revenue at the present time, so its financial strength is much less impressive than a number of its sector peers. And with its near-term share price movements being highly dependent upon the news flow regarding its acreage in Alaska, its shares could continue to be highly volatile.

For example, they have fallen by 11% today despite 88 Energy announcing an increase in the independent resource estimate for the Icewine project in Alaska to 1.4bn barrels of oil equivalent, while the probability of Geologic Chance of Success has also increased from 40% to 60%.

Clearly, for less risk averse investors 88 Energy may be of interest. Its shares could continue to post excellent returns following their superb run since the turn of the year, which has seen them soar by 640%. However, the likes of Randgold Resources and Antofagasta seem to offer superior risk/reward ratios for most investors at the present time.

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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.