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Why should Randgold be your template for

seeking investment in gold stocks?

Before we assess Randgold’s competitive advantages

over other gold producers and the reasons you need to

copy its approach to mining, you must rst understand

the fundamentals of why other people view gold as an

investment and preservation of wealth.

Lately, gold has come a long way from its lows of

$1,00 per o!. to record its "iggest gains in si# years,

 umping to $1,%&0 per o!. in a matter of wee's.

(e 'now it has "een a wea' investment if you measure

the performance against home prices, stoc's and

"onds in the last century, "ut this century "elongs to

gold.

 )ou may have heard of the *+hina’s +entury, or the

*-ndian +entury, all it means is that this century will "e

the *olden +entury /no pun intended

2ere’s why

8/19/2019 Why Randgold Should Be Your Template for Seeking Investment in Gold Stocks

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10.00

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30.00

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50.00

37.79

31.6%31.4

37.6&42.!

%7.&&29."7

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3%.6037.3$

40.3

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1.40$.24

$".!4

$3.#7$$.44

%o& important is 'hina ( )ndia in the gold market

reater +hina 8 -ndia as a

/9 of world gold demand

*+,

-ource: old.org.

;s you can see, "oth +hina and -ndia is "eginning to

corner the gold mar'et.

(ith the com"ination of rising income per capita,

changes to government policies and a history of gold

ownership in its culture and traditions, you would "egin

to understand why it’s so much in demand.

But most importantly, increasing income per capita is

the 'ey factor in the demand for gold, as - will e#plain.

-f you com"ine the income of "oth -ndia and +hina

*together, you will get this:

8/19/2019 Why Randgold Should Be Your Template for Seeking Investment in Gold Stocks

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0.0

1,000.0

%,000.0

3,000.0

4,000.0

,000.0

5,000.0

&,000.0

6,000.0

7,000.0

10,000.0

'ombined income of )ndia and 'hina

+hina and -ndia per capita

/$

<ource: =uandl.com and =uandl.com.

<ince 1761, "oth countries had seen its com"ined

income rising from $4&1 to $7,1&1 in %014.

>eanwhile, gold demand from these countries has

dou"led

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0.0

00.0

1,000.0

1,00.0

%,000.0

%,00.0

3,000.0

3,00.0

4,000.0

4,00.0

0

%00

400

500

600

1000

1%00

1400

1500

1600

'hinese and )ndian buying up the physicals

reater +hina 8 -ndia

/tonnes

(ord gold demand /tonnes

old /$?ounce*/0ounce,

-ource: old.org.

 @he reasons why the demand for gold hasn’t *s'yAroc'eted at the same pace as income per capita of

+hina and -ndia are:

;. @he +hinese government didn’t allow the ownership

of gold to private citi!ens until %003

B. old price /itself has appreciated "y veAfold, since

the lows of %001

+. -ndian Rupee is continuing to depreciate against the

C<D, meaning you need more Rupees to "uy one ounce

of gold.

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2owever, the ongoing prosperity of "oth +hina and

-ndia means more ordinary people can aEord gold. ;nd

a proection of the future is as follows:

By %0%0, the ->F estimates "oth these giants will have

a com"ined per capita of $14,%5. /@he proection of

+hina’s DG "y %0%0 is $1& trillion and -ndia at $3.44

trillion. ;nd the population of +hina and -ndia is

estimated at 1.411"n and 1.366"n respectively.

By %00, 2<B+ rec'ons that "oth these economies

would have grew that to $%%,617 /at constant %000Dollars.

 @here are two o"ective factors to support and "oost

the price of gold:

1. old will "ecome cheaper when incomes, in C<D

terms from -ndia and +hina go up

%. -t will "e more inAdemand as the cost of essentials

/food, clothes and rents drop, in proportion to growing

income.

- guess you got the est of why gold would "e "ullish

this century than the last, "ut if you are interested in it

and want to learn more a"out the factors aEecting the

gold price then ma'e sure to chec' out my article on:

Hditor’s pic': @he driving factors aEecting the gold

mar'et.

Iow, for the main topic

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2ere is why you should study Randgold Resources, as

the gold miner with the *golden touch and why it will

proof a good template when it comes to investing in

other gold investments.

1ive reasons Randgold Resources is a great gold

miner:

1. -uperior margins

For a capitalAintensive sector, miners have to earn a

"igger margin on goods to pay for capital e#penses not

recorded in the -ncome <tatement.

Randgold is ma'ing a good margin on the price of gold:

0.00

10.00

%0.00

30.00

40.00

0.00

50.00

&0.00

$0.0

$%00.0

$400.0

$500.0

$600.0

$1,000.0

$1,%00.0

$1,400.0

$1,500.0

$1,600.0

argins tell investors if a business can cope &ith price

Iet margin /9

+ash margins /9

old price /$?o!.*+, */0o.,

8/19/2019 Why Randgold Should Be Your Template for Seeking Investment in Gold Stocks

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-ource: Randgold annual reports and -nde#mundi.com.

But how do you 'now that these margins will cover

capital e#penditureJ

<imply ta'e its net earnings and cash earnings and

compare that with capital e#penditure.

0

0100

10

%00

%0

300

30

400

4000

'overing cape *most, of the time

+ape# /Km

Iet -ncome /Km

+ash -ncome /Km*5m,

-ource: Randgold annual reports.

Both net income and cash income /alone covers total

cape# /e#cl. disposals with ease, and therefore, the

"usiness can "e suciently internallyAfunded.

%. 'heck on debt increases and the number of

shares issued

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-f a fully operational "usiness can’t fund its operations,

they must draw down on cash reserves, dispose assets,

or raise money to support its operations.

 @he last method /can mean dilution to shareholders

67uity: (hen companies raise funds through placing

then the discount to current share price is a crucial

indicator of a healthy "usiness.

<o, if you see a signicant discount on current share

price, then avoid the stoc'.

8ebt: ; company raising loans at high interest rates

than their rivals show that nancial institutions don’t

have condence in seeing their money "ac', therefore

imposing a high interest as a guarantee of seeing some

of the money.

For shareholders, that means the company is

essentially wor'ing for its creditors.

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0

10

%0

30

40

0

50

&0

60

70

100

0.0

1000.0

%000.0

3000.0

4000.0

000.0

5000.0

&000.0

'hecking 4 li7uidity issues

Io. of shares /L2<

De"t /Km, L2<

>ar'et +ap. /Km*5m, *5m,

-ource: Randgold annual reports.

; loo' at Randgold Resources, you see de"t is near

!ero, and the num"er of shares dilution was at aminimum. ;lso, compare it to Randgold’s mar'et

capitalisation going up in value and you have a recipe

for success.

3. 9ble to produce surplus pro:ts ; current

production levels

Mne yardstic' that would "ring you success when it

comes to mining is how much *surplus cash would it

ma'e while maintaining current levels of productionJ

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For prudent and accuracy, you should wor' out the

incremental increase in the company’s accumulated

depreciation.

- view *accumulated depreciation as a "etter measure

than depreciation charges "ecause it accounts for the

disposal of tangi"le assets Below, you can see the

incremental accumulated depreciation as a 9 of sales

is "elow that of Randgold’s net and cash margins,

therefore the gold miner produces *surplus

prots?cash.

-ource: Randgold annual reports.

<o, what is the surplus prots?cash generated "y

RandgoldJ

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A0

0

0

100

10

%00

%0

300

30

Randgold<s has ability to acuire or pay a dividend

<urplus prots /Km

<urplus cash /Km

-ource: Randgold annual reports.

 @hat is how much it can ma'e while maintaining

production.

4. Randgold has a strong proven and probable

reserve 

+urrently, Randgold produces 1.%m ounces of gold per

annum, and it has proved and pro"a"le reserves of gold

amounting to 1m ounces.

;t the current level of production, Randgold’s provengold reserves will last twelve years.

Randgold’s resource /that is measured and indicated is

estimated at %&.5m ounces. (e should ignore this

resource num"er "ecause the current gold price could

mean it isn’t economically via"le /will not generate

cash earnings.

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A

,000.00

10,000.00

1,000.00

%0,000.00

%,000.00

30,000.00

0.0

1000.0

%000.0

3000.0

4000.0

000.0

5000.0

&000.0

6000.0

7000.0

10000.0

Randgold reserve value vs. 2arket value

 @otal reserve value /G8G

/$m

>ar'et value /$m, R2<*/m,

-ource: Randgold annual reports.

 @he correlation "etween Randgold reserves value islower than the stoc' value and could mean

overvaluation.

. 'hecking Randgold valuation via fundamental

analysis

;nother way to chec' on an overvaluation in a goldproducer is to consider:

1. >ar'et value per ounce priced "y investors />ar'et

valuation divided "y the company’s proven and

pro"a"le gold reserves

%. ;dd in the total cash cost per ounce.

3. @hen compare it with the current gold price.

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0.0

%00.0

400.0

500.0

600.0

1000.0

1%00.0

1400.0

1500.0

1600.0

Randgold<s cash cost ( market value per ounce

+ash cost /$?o!.

>ar'et value /$?M!.

old price /$?o!.*/0o3.,

-ource: Randgold annual reports.

2ere you can see the correlation "etween the gold

price and the cash cost and the value mar'ets gave to

Randgold’s reserves. ;nd Randgold is trading inAline

with the movements of the gold price.

=)>: -f you see a gold miner’s cash cost and mar'et

value per ounce overshoots the gold price, then you are

loo'ing at an overvaluation of the "usiness.

 @hat was ve ways of researching and 'nowing the

characteristics of a successful gold mining corporation.<o, now for the template, you have "een waiting.

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=he Randgolds template to successful gold

mining

1. For an esta"lished gold producer, price to "oo'

should "e no more than ve times, unless you see a

huge increase in economies of scale meaning a

reduction of total cash costs. +urrently, Randgold is at

%.3.

%. Randgold’s cash costs per ounce stand at $50

which gives it room to e#pand operations. ;lso, note

that the mines average 3.3A3.6g?t this is a reasona"le

grade and the reason why cash cost is low.

3. @o invest in a successful miner, ma'e sure it can

internally fund its mining operations. For Randgold,

they are earning %19 on margins where to sustain

current levels of production they must earn 169 onmargins.

@A. ; miner ma'ing 9 or 109 on sales is no good if

net cape# accounts for 19 of sales

4. ;lways chec' for any changes in a gold producerNs

liOuidity position, instead of focusing on sales and

earnings growth. (e are loo'ing for sustaina"leoperations not a PoneAtimeP sellAoE of its nonAcore

operations

<ometimes, a miner would "orrow for acOuisitions and

for e#pansion purposes, which is another topic for

another day. But if there are no e#pansion plans, then

the increase in leverage and dilution to shareholder

should "e a maor concern.

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- will do another piece on the potential gold producers

matching Randgold’s fundamentals soon.

8isclosure: - have no positions in any stoc's

mentioned, and no plans to initiate any positions within

the ne#t &% hours. - wrote this article myself, and it

e#presses my opinions.