Berenberg upgrades Randgold to 'buy' from 'hold'

The broker said the upgrade follows a 30% drop in Randgold’s stock price from its mid-2016 peak and an improved long-term project visibility. The new price target implies a 13% upside.

“We consider Randgold as a high-quality long-term gold play, currently mispriced by the market’s short-termism and focus on spot gold price movements,” Berenberg said.

Randgold holds a “strong” resource base in its operations in central Africa with 2P reserves of 15m ounces with an “attractive” grade of 3.6g per tonne and plans to increase its gold output by 29% to 1.6m oz by 2020, Berenberg noted.

It is also growing its own mineral base with management in late 2016 announcing plans for three new mines in five years. Randgold also highlighted potential projects that will be driving output volumes from 2020.

Output volumes from the Tongon mine, at 260,000 oz per annum, will be replaced by volumes from the Senegal-based Massawa project with 2.9m oz of gold reserves and 3.7grammes per tonne of ore grade.

Other projects include one in the Ivory Coast near the Tongon mine and another in north-east DRC, near the Kibali mine.

On the company’s balance sheet, Berenberg said: “In stark contrast to its industry peers, Randgold has no debt, with an estimated end-2016 net cash position of $290m.

“The cash pile is set to grow to $2.3bn by the end of 2020, assuming a gold price of $1,200/oz, according to Randgold management’s estimates. With capex peaking at $270m in 2017, we expect a 2017-18 free cash flow yield of 3.5-3.7% and a 2017-18 dividend yield of 1.0%.”

Shares fell 0.44% to 6,764.95 at 1028 GMT.