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« The Gapping Deficit Gap! | Main | G20: Nothing is our best hope! »
Thursday
Apr022009

Randgold Resources Limited: Lots More Potential

Randgold Chart 03 apr 09



On the 16th of June 2008, we bought Randgold Resources Limited (NASDAQ: GOLD) for $37.65 and are very pleased to report that Randgold is now trading at $56.89 for gain of $19.24 or 51.1%. We will now discuss a few ideas regarding the way forward for this investment but firstly we must mention Randgolds latest discovery as reported by Bloomberg recently:





April 1 (Bloomberg) -- Randgold Resources Ltd., the owner of gold mines in West Africa, said a deposit in Senegal has the potential to be one of its top discoveries.

The Massawa project is “a lot better” than the company’s Tongon deposit in Ivory Coast was at the same stage of development, said Chief Executive Officer Mark Bristow. Tongon, which is scheduled to begin output next year, contains 3 million ounces of reserves, which is the estimated amount of gold that can be mined profitably.

Massawa has “lots more potential” than Tongon, Bristow said in a telephone interview from Senegal yesterday. “We have made a discovery that runs the risk of being one of our best.”

Randgold is looking for additional production as mining at one its two Malian operations is due to end in the second quarter. Bristow said in February he had held talks about acquiring Moto Goldmines Ltd., which plans to develop the Democratic Republic of Congo’s largest gold mine.

“If it is as good as Tongon then that would be three world-class assets in excess of 3 million ounces each, which is a rare thing to find,” John McGloin, an analyst at Arbuthnot Securities Ltd. in London who has a “reduce” recommendation on the stock, said in a telephone interview.

The shares rose 198 pence, or 5.4 percent, to close at 3,883 pence in London. They have gained 32 percent this year, valuing the company at 2.98 billion pounds ($4.3 billion), compared with a 15 percent gain in the FTSE 350 Mining Index.

Mine Study
Randgold, which is based in Jersey, is carrying out drilling at Massawa and will announce details of the so-called initial inferred resource tomorrow, Bristow said. A so-called bankable feasibility study, which is usually required by investors before they fund development, is expected to be complete by the end of 2010, Bristow said. There’s a “very good” chance Massawa will produce gold by 2013, he added.

“We have always had as our focus the minimum of 3 million ounces and there is every indication that this will be one of those projects,” Bristow said.

The Morila joint venture in Mali will be converted this quarter into a project that treats stockpiled raw material. Randgold also controls the Loulou mine in Mali.
Randgold produced 428,426 ounces of gold in 2008. Bristow forecasts output this year of 490,000 ounces.

Gold, which gained 5.8 percent last year and traded at a record $1,032.70 an ounce in March 2008, has advanced this year on concern that inflation will accelerate following Federal Reserve plans to buy Treasury securities and mortgage bonds.


A number of readers have asked whether or not they should be taking profits as Randgold has registered good gains in less than ten months. Well that all depends on your own unique objectives, however there are a few strategies that you might want to consider.

Firstly and the must simplest trade would be a straight forward sell and enjoy the cash. You could sell just a portion of your holdings and take some money off the table. A bit more adventurous play would be to sell the 'out of the money' call options at a $60.00 strike price, thereby getting the option premium immediately. If the stock rises above this price then you will have to relinquish the shares, but you will have made a handsome profit and get to keep the option premium. If you are really convinced that this stock is due for a decent correction then you could sell the stock and buy a put option on the stock. This is a trade for the 'aggressive' trader but if you are correct then this trade would generate extremely good returns. There are many more combinations that can be adopted which vary in complexity and cost, those trades we tend to avoid as less complicated trades have delivered better returns to us in the past.

We are now watching Randgold closely with the view to identifying a reasonable trading strategy which we will of course publish as soon as we finalize the trade.

Have a sparkling day.

Randgold has a market capitalization of $4.36 billion, a P/E ratio of 104.49 with 76.66 million shares outstanding. The average volume of shares traded is 1.16 million per day. This stock has a 52 week high of $56.89 and a 52 week low of $22.28. The stock closed at $56.89 yesterday on the NASDAQ.

Randgold Resources Limited trades on the NASDAQ under the symbol of GOLD and on the London Stock Exchange under the symbol of RRS.

Got a comment – then fire it in.

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Reader Comments (4)

I also see GOLD (and also for me AEM) as very strong gold stocks. Who do you think see as the weakest?

April 3, 2009 | Unregistered CommenterBC

> A bit more adventurous play would be to sell the ‘out of the money’ call options at a $60.00 strike price, thereby getting the option premium immediately.
>If the stock rises above this price then you will have to relinquish the shares, but you will have made a handsome profit and get to keep the option premium.

The play I have in place for 3 of my current holding would look something like for GOLD
Assuming I own GOLD, sell the Apr 55 call for $2.35, or the 60 for $0.75. Just before it expires in 2 week I would look to roll it over (i.e., buy back the Apr call and sell a May call). I could roll to the same or different strike price. Don't automatically assume a sale if the price is over $60, rather consider the possibilities (and yes 1 possibility is a sale). If the stock holds in this range and volatility remains high, I could easily net that much again for the roll over. The longer I can keep this up the more I reduce my net cost for the stock I hold. If the premium becomes less valuable or the stock get called away, it is on to something else. I am doing this in a tax protected account so if the stock is called away, there is no tax impact.

April 3, 2009 | Unregistered CommenterBC

BC,

Yes we also believe that these stocks are good and strong but our analysis suggested that a short term pull back was on the cards which we are seeing today and as some of our readers were sitting on good profits they asked about the way forward. Hence we give a few suggestions, but we have not sold any of these stocks and we always post an article immediately if and when we do make a trade.

In your second point you write 'Assuming I own GOLD' if you don't own this stock then your emotions are not on the line, our readers do own it and their emotions are on the line everyday, even though we all try to be clinical when making decisions, emotion plays its part, hence fear and greed are biggest movers of any market.

April 3, 2009 | Unregistered CommenterGold Prices

Not holding Randgold (GOLD) now, but am holding others. I used specifics for GOLD to illustrate the roll over of a covered call, because that stock was the focus of the article. I could have just as well use a stock I am holding for the example, but this way the price points in my example matched with the stock in the article.

I wanted to address the comment "If the stock rises above this price then you will have to relinquish the shares". A roll over is a simple way to collect additional premium even if the stock is higher than the strike price of the call that was sold. Some people may think that they have no choice but to have the stock called away from them. Often a roll over allows them to collect additional cash and push out the strike date.

As to emotions on the line or not, very true and I appreciate that you disclose what you hold. In the same light I wanted to be clear what I held and do not hold, so that all would have a full disclosure from me.

April 3, 2009 | Unregistered CommenterBC

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