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Randgold Resources still a ‘buy’ despite disappointing year - Fox Davies

Last updated: 08:46 16 Feb 2011 EST, First published: 09:46 16 Feb 2011 EST

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Randgold Resources (LON:RRS) has had a disappointing year according to Fox Davies analyst Peter Rose, however he reckons things will improve for the South African miner.

Rose has retained his ‘buy’ recommendation for Randgold however he has cut his price target from £65 to £60.75 a share.

Earlier this month Randgold revealed that operational and political setbacks cost it dearly in 2010. Although gold sales rose 25 percent to US$145 million and profits grew 43 percent to US$120.6 million, the record-breaking gold price rally was responsible for much of this growth.

In addition to its technical problems, 23,428 ounces of gold went un-sold as the fallout from the disputed Côte d'Ivoire elections in November disrupted logistics from the mine.

The stock has fallen more than £14.75 a share, about 23 percent, since early November. And the shares are currently changing hands around the £48.50 mark.

“The problems in the Ivory Coast and the slower than expected rate of development at the Loulo mine have resulted in significantly lower earnings than we were anticipating in early 2010,” Rose said in a note to clients. 

“It has been a disappointing year for the Loulo mine, with two downgrades to the production forecast, and the high grade ore was not intersected until November, a month late. Additionally, the mill was subjected to an overrun on the mill relining and extended downtime for the upgrade to the switch gear following power interruptions earlier in the year. 

“Whilst frustrating, this is nothing serious.” 

He adds: “The fact that the process plant is being expanded and will treat open pit ore from Gounkoto should mean that despite any underground mining problems at Loulo, the mill will remain full.” 

The analyst went further saying that although Loula’s expanded processing plant is designed for 3 million tonnes a year he wouldn’t be surprised if it did at least 10 percent more than that.

“We strongly believe that the stock is oversold, but expect buying opportunities to present themselves in the first half of 2011,” Rose added.

 

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