HSBC upgraded Randgold to ‘buy’ from ‘hold’ but lowered its target price to 7,700p from 7,800p on the expected impact of foreign exchange headwinds.
READ: Randgold Resources doubles dividend as annual profits rise by 14% on increased gold production
On Monday, Rangold reported record production and a jump in profits for the year to 31 December 2017.
The company also doubled its dividend as net cash grew with no debt.
Kibali mine should boost cash flows, says HSBC
HSBC expects another 50% increase in the dividend for 2018 as it believes the Kibali gold mine should generate more cash flows after Randgold said the project is likely to reach full production this year.
“FY18 cash earnings per share are set to rise as the underground mine at Kibali ramps-up and capex slows, driving unit cost retracement and volume and FCF growth,” said HSBC.
“Realising cash flow from Kibali is an important indicator of Randgold managements’ continued ability to manage regulatory risk, with promulgated changes to the DRC (Democratic Republic of Congo) mining code likely to provoke continued news flow in the short to medium term.”
The bank also sees Randgold receiving approval for production at the Massawa gold project in the fourth quarter.
Randgold well-placed to handle regulatory changes
Chief executive Mark Bristow warned that a new mining code in the Democratic Republic of Congo would have “serious consequences”.
Miners will be subject to new royalty charges as well as a 50% super profits tax under the new code.
“At a time when regulatory uncertainty remains elevated in many African jurisdictions, Randgold’s operational outperformance and unrivalled track record of discovering and developing high-quality assets across Africa has set the group apart,” said HSBC.
“Over time these qualities have resulted in low volatility relative to the peer group and earnings multiples which trade as sustained and substantial premia.”
Shares in Randgold fell 2.9% to 6,028p in morning trade.