NEW YORK (TheStreet) -- What do you think the ticker GOLD stands for?
Maybe the gold price itself? Or some form of exchange traded fund giving you exposure to the precious metal?
I am still surprised that Randgold is not a better known name. The company typically ends each of its quarterly report presentation documents with a chart showing its share price outperformance against a broad peer group. This quarter is no different and judging by some of the performance metrics the company has achieved, this is no accident.
Gold mining stocks have generally had a difficult last few years. Not only has the yellow metal seen a sharp price correction, but high profile names such as Newmont (NEM) and Barrick Gold (ABX) have seen suppressed profitability, written down the value of assets and, in Barrick's case, been forced into an equity money raising.
None of this is good for sector share prices.
Randgold Resources has not written down assets or been forced into a money raising. Instead, with a focus on building large projects that are viable at just gold prices of just $1,000 an ounce -- a price about 30% lower than today's -- the company has successfully grown production from just over 400,000 ounces in 2010 to target 1.1 million ounces this year.
The real key is in the ground. The company's secret sauce is grade or the amount of gold in each ton of earth. Speak with most gold companies today, and one or two grams of gold per metric ton is pretty normal. Randgold's key mines are producing at four or five grams per metric ton. And the reason for this?
One pushback some investors give on Randgold is the location of its mines in West and Central Africa (specifically Mali, Cote d'Ivorie and the Democratic Republic of the Congo). But the majority of the company's workforce -- including the mid-management -- are local. A willingness to employ locally, pay taxes locally and engage in partnerships with the governments in the region has allowed the company to discover and benefit from some attractive gold mining opportunities. Judging by the company's presentation deck, exploration research continues to find the next mining opportunity.
With production growth and high grades, cost control and continuing exploration opportunities, for me, the gold standard in larger-cap gold mining companies is Randgold.
It's just a bonus that it has the best -- and easiest to remember -- stock market ticker for the sector too.
At the time of publication, the author was long GOLD, although positions may change at any time.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates RANDGOLD RESOURCES LTD as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
"We rate RANDGOLD RESOURCES LTD (GOLD) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its solid stock price performance, largely solid financial position with reasonable debt levels by most measures and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
- GOLD's debt-to-equity ratio is very low at 0.00 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.08, which illustrates the ability to avoid short-term cash problems.
- RANDGOLD RESOURCES LTD has improved earnings per share by 5.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, RANDGOLD RESOURCES LTD reported lower earnings of $2.99 versus $4.65 in the prior year. This year, the market expects an improvement in earnings ($3.59 versus $2.99).
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Metals & Mining industry and the overall market on the basis of return on equity, RANDGOLD RESOURCES LTD has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- Net operating cash flow has decreased to $49.77 million or 45.91% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full analysis from the report here: GOLD Ratings Report