Canaccord downgrades Randgold Resources ahead of FY results
Canaccord Genuity on Friday downgraded Randgold Resources to ‘hold’ from ‘buy’ and cut the target price to 6,400p from 7,180p.
Ahead of Randgold’s fourth quarter and full year production results on 6 February, Canaccord cut its estimates for gold prices following a decline in November and December. The average price for 2016 was $1,248 per ounce.
The broker reduced its forecast for 2017 gold prices by 8% to $1,183 per ounce while the 2018 estimate was lowered by 7% to $1,206 per ounce with further declines of 4-6% per year expected from 2019 to 2022.
Canaccord noted Randgold’s announcement of improved recovery rates and throughput at the Kibali prospect in the Democratic Republic of Congo. However, the miner also warned that grades would remain a challenge until the underground mine is fully commission in late 2017.
“We are not changing our Kibali forecast of 593,000oz for 2016 (guidance 610,000oz), and slightly lower our 2017 estimate from 622,000oz to 611,000oz (2017 guidance c.625,000oz),” Canaccord said.
The broker expects full year 2016 gold production of 1.23m ounces, compared to Randgold’s guidance at the “lower end” of the 1.25m to 1.30m ounce level.
Given the slightly lower realised gold price, Canaccord lowered its earnings before interest, tax, depreciation and amortisation (EBITDA) forecast for 2016 from to $540m from $553m and its earnings per share estimate to 289 cents from 299 cents.
For 2017, the broker reduced its 2017 EBITDA estimate to $527m from $615m and EPS projection to 264 cents from 330 cents.
“With our lower gold price deck, our net present value forecast drops from 5319p to 4729p, and we lower our target price from 7180p to 6400p.
“Given that Randgold shares are currently trading at 6420p, we lower our recommendation from Buy to hold. At the current gold price, we estimate the fair value for Randgold (based on our 1.35x P/NAV multiple) is c.5970p, ie c.8% below the current share price.”
Shares rose 0.35% to 6,445p at 1031 GMT.