Randgold's (LON:RRS) quite blistering quarter delivers on the hoped for annual dividend rise (+52%) in line with the net cash position coming in a little above target following a sure-footed 72% surge in Q4. That explains the stock price improvement to a three-month high on Monday, though judging by the share’s elasticity around its highest levels today, investors also have a moderate balance of wariness too.
Here, we’re watching the recent moderation of the gold price recovery, the impact on taxation from conclusion of an exoneration period in Mali at end-2015 and persistent production missteps, albeit these had a relatively narrow scope in the fourth quarter.
Randgold has modelled for gold at $1,000; the investment case obviously makes more sense with current prices above $1200, but the spot’s end 2015-July 2016 advance is over, leaving it 10.5% lower since July.
We note the lower production Massawa-Sofia development project sensitivity equates to a 45% change in revenues at $1,000/Oz from a 5% change in the gold price compared to c.26% sensitivity at the Gounkoto super pit.
Meanwhile, in Mali, Morila actually made a $7.1m loss. That was partly due to an unexpected production decline from lower-grade tailings, rising depreciation and project costs from Randgold’s planned agribusiness.
The Malian loss is a reminder that Randgold’s leeway in its complex operating environments remains malleable from multiple external factors. At least the impact of the 5 day sit-in at Tongon should be negligible. But it is the occurrence of the industrial action at all that investors will keep an eye on. The group itself suggested last week that workers may have been emboldened by industrial action elsewhere in the region.
Taxation, production, and industrial questions are the main risks we see to the group’s nascent recovery. More to the point, they’ll go a long way to deciding when the next significant dividend hike may be seen.
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