Exposure To Country Risk: The Randgold Edition

Apr.26.13 | About: Randgold Resources (GOLD)

In a series of recent articles we investigated the country risk of various mining jurisdictions in which U.S.-listed precious metal miners are active. We collated country risk ratings for these countries from eight different sources and averaged these ratings into compounded country risk scores. The most recent results from this work can be found in this article. Most definitions of country risk include factors such as political risk, exchange rate risk, economic risk, sovereign risk, transfer risk, socio-economic risk and others. Depending on the source, various contributing factors of country risk are weighted differently. Readers interested in the specific definitions are encouraged to follow the links to our sources given in this article. We used our compounded country risk score to evaluate country risk exposure for selected gold and silver mining companies using 2011 production results and reserve statements. As 2012 data becomes available we are providing updates and in the present article we would like to do so for Randgold Resources (NASDAQ:GOLD).

Randgold has a focus on operations and developments in West-Africa. Presently the market capitalisation is $7.5B and the forward P/E is given as 11. Shares are trading at $81.29 at the time of writing and the median price target as listed on Yahoo.com is $119.50. In 2012 Randgold produced 794,844 ounces of gold in three mines in Mali (Loulo-Gounkoto Complex, Morila mine) and Cote d'Ivoire (Tongon mine). The Kibali development project in the Democratic Republic of the Congo is scheduled to go into production towards the end of 2013. Additionally there is also the Massawa project in Senegal. The table below gives the 2012 numbers for production, reserves and resources at each of Randgold's mines and projects.

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Consolidating the production, reserve and resource data showing summations for each country of exposure results in the table below. The data is already calculated in percentages of gold-equivalent ounces. Country risk ratings as documented here are also shown in the central column of the table. Additionally, the country risk ratings for Cote d'Ivoire, Senegal and Democratic Republic of the Congo were derived using the methodology described in this article. Country risk ratings range from 0 to 100 with low numbers indicating low risk and high numbers indicating high risk. The right side of the table shows the weighted risk contributions for each country separately for production, reserves and resources with summarized scores in the bottom line. The individual ratings can be interpreted as ratings going from present risk (production) into the future (inferred resource).

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Observations

Randgold operates in jurisdictions with some of the highest country risk in the world, which is reflected in our computed risk ratings. When using production data the risk rating is 80.72, which is significantly higher than any other mining company we have studied in our article series so far [Iamgold (NYSE:IAG) comes in second place with a rating of 61.61].

When using reserves and resources the risk ratings reduce slightly to the high 70s due to contributions from the project in Senegal, which is a slightly less risky jurisdiction.

Randgold carries an extremely high country risk, but has also been able to unlock the rewards that often come with high risk. Randgold has enjoyed some outstanding growth on the back of successful production at very reasonable cost at its operating mines.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.