RBC Capital downgrades Randgold on expectations of near term challenge for gold

RBC expects Randgold to underperform its peers and the lower target price was largely on higher capital expenditure in the 2017 financial year and implies 17% downside using the broker’s $1,300 per ounce of gold forecast.

It said that on a spot net present value basis, Randgold and the European gold industry in general, has moved back to Brexit-like levels with the miner trading at 1.9 times the spot net present value, the top of its 12-month range after a quarter that is not expected to be repeated in the near-term.

A near-term challenge for gold is expected with the recent resurgence in real interest rates suggesting that there could be more short-term headwinds.

RBC said that Randgold has created the most value in the gold industry over the past decade, but there is difficulty in seeing what drives the miner to the next level.

“Sofia-Massawa appears to be the next growth project; however, this will likely only serve to replace Tongon production in what is a hybrid/refractory project that doesn't yet meet the 20% initial rate of return threshold for investment.”

It believes there is long-term value potential in the Democratic Republic of Congo and Cote D'Ivoire, but this could be additive over the medium-term and does not compensate for the current valuation, as RBC adds $500m to its net asset value for the intangible value.

The broker also took aim at the $516.0 of cash sitting on the gold digger's balance sheet, which equated to 1/8th of its total shareholders' equity and was returning less than 1%, weighing on its return on equity.

Shares in Randgold Resources were down 2.09% to 7,015p at 1324 GMT.