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The Gold Stock Strategist analyzes leading junior gold producers and major gold mining companies.

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Monday, February 8, 2010

Randgold Shares Fall Despite Record Production

Randgold Resources Ltd. ($GOLD), a West African-focused gold miner, reported record production, a 79 percent jump in annual reported earnings, and a 30 percent increase in its annual dividend. Despite the positive news, Randgold share prices dropped 2.6 percent today after showing early price and volume strength (see chart below).

Randgold announced it produced a record 488,255 ounces of gold in 2009 compared with 428,426 ounces in 2008, up 14 percent year-over-year. Randgold said the rising production was due to an expansion at its "flagship" Loulo project. The government of Mali owns 20 percent of Loulo.

Surging gold prices helped to drive annual revenues to $434 million for the year, up 28 percent from $339 million in 2008.

The company reported the price of gold received in the fourth quarter averaged $1,101 an ounce, 38 percent higher than Q4 2008.

2009 annual results show a profit of $84.3 million compared to $47 million in 2008, or 79 percent. Fourth quarter profits were up 185 percent from the third quarter and 315 percent on the corresponding quarter in 2008.

The board increased the annual dividend by 30 percent to 17 cents per share from 13 cents. The company's balance sheet shows $590 million in cash and no net debt.

For more information on the earnings report, the press release contains more information on specific projects and can be accessed here. A recent company presentation can be downloaded here.

Randgold has projected cash by-product operating costs of $500 per ounce of gold mined, more than 20 percent above the industry average of $413 an ounce. As a result, it is more highly leveraged than other unhedged gold producers. The company cash costs are lower than continental neighbors in South Africa including: Gold Fields ($GFI) at about $600, Harmony Gold ($HMY) at about $750, and AngloGold Ashanti ($AU) at $550 cash cost per ounce of gold.

The company also has a 33 forward price-earnings ratio based on recent consensus annual earnings estimates for 2010. The forward 2010 p/e ratio is higher than the average forward p/e ratio for Tier 1 and Tier 2 gold producers at 19. But Randgold also is scheduled to increase production from 530,000 ounces in 2010 to 750,000 ounces of gold produced in 2011 as the Tongon project in Ivory Coast initiates production in late 2010.

Randgold is a compelling growth story through 2015. If development properties come on line per the schedule, the company could be a 1.5 million ounce per year producer in five years. Political risk in East Africa and rising operating costs over time present more risk than gold producers in more politically stable parts of the world.

Randgold traded down 2.6 percent today to close at $67.85. Other major gold miners were also down with Barrick Gold ($ABX) at $34.57 (-3.5%), Newmont Mining ($NEM) at $44.41 (-3.9%), Goldcorp ($GG) at $34.41 (-3.1%), and Yamana Gold ($AUY) at $10.01 (-4.3%).

Spot gold traded flat today around the $1,063 an ounce level.

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