Assuming you’ve already developed the ability to zig while others zag (which isn’t easy), I think one of the best contrarian plays in the market’s top tier right now could be African-focused gold miner Randgold Resources (LSE: RRS).
Priced just under 5,500p a pop, the company has lost 33% of its value since last September (and more today) thanks to the surprising tumble in the value of the precious metal.
I say ‘surprising’ for the simple fact that gold has long been considered a safe haven in troubled times. Pull up a graph of its price in the aftermath of the financial crisis and you’ll see what I mean.
More recently, however, this trend hasn’t been in evidence. Thanks to the strengthening dollar (which makes gold increasingly more expensive for investors holding other currencies), even the threat of a global trade war hasn’t stopped the price of the shiny stuff slipping from $1,360 in mid-January to around $1,215 today.
Over at Randgold, things are a bit more positive. Production at its Kibali mine hit a record 201,742 ounces in Q2 — up 17% on Q1. As a result, the mine is now likely to exceed production forecasts for the current financial year. Elsewhere, performance at the company’s Loulo-Gounkoto complex also rose, by 4%, to a little over 150,000 ounces. Total gold production rose 9% over the last quarter.
Encouragingly, more of this gold is also being sold. Sales climbed 5% to $411.5m in Q2, despite the ongoing fall in price.
In other news, the company expects to make a final investment decision on its promising Massawa project in Senegal by the end of 2018. As far as exploration is concerned, Randgold also reflected on “significant progress” being made at various sites which serve to “reinforce” the company’s 10-year business plan. And the firm remains profitable so long as gold holds above $1,000 an ounce.
It wasn’t all good news, however. Production at the company’s Tongon mine in Cote D’Ivoire continues to be impacted by a number of work stoppages. The latest — occurring after the end of Q2 — necessitated the revision of annual production forecasts to “around 250 koz”. Notwithstanding this, CEO Mark Bristow stated that Randgold had been reassured by the government’s efforts to “protect the assets” and deal with the situation, adding that recent strong performance should mean that production and cost guidance for the current year can still be met.
Based on today’s price, shares in Randgold can be picked up for 22 times forecast earnings, reducing to 19 next year. These may seem high numbers but they’re actually fairly decent for a company whose stock is rarely cheap. The shares could move lower, of course, but — from a long-term perspective — I think these are already starting to offer quite a bit of value.
Those concerned by the ongoing price weakness may also be comforted by the fact that Randgold is likely to return $2.82 per share in 2018, equating to a yield of 4%. Assuming analysts are correct in their predictions, a 32% hike in 2019 will bring the yield to 5.25% — tempting for a company that also boasts the quality of being debt-free.
Holding gold (or any producer) won’t be to every investor’s taste but, for those looking to build a seven-figure diversified portfolio that performs in both good and bad times, I think Randgold could be a great addition for when markets eventually wobble.
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.