Randgold: A Gold Call With 49% Upside (GOLD)

Randgold Resources Ltd. (NASDAQ: GOLD) is a gold mining and exploration company with operations mostly in Western and Central Africa.  Needless to say, it operates in some countries where many of you who carry blue-colored passports would want to avoid.  A research call from Bank of America Merrill Lynch stands out as a winning impact call if its outlook and thesis remain solid ahead.  The call is for nearly 50% upside.

BofA is reiterating its ‘Buy’ rating after recent turmoil in the Ivory Coast has taken a bite out of shares.  The firm did lower the price target by 16% in GB Pence but this still comes to what would be approximately $110.01 in US Dollar terms versus a prior implied target of $123.38.  The firm noted 49% upside, but our price upside in dollars comes to a call for about 45.7% upside.

At issue is a 25% share price drop as its Tongon mine in Ivory Coast counts for almost one-quarter of its net present value. During this time, BofA said that gold has remained flat.  If you are worried about geopolitical risks, this one may not be for you.  BofA cites two key risks as being a ramp-up delay at the mine and also cites civil war as a risk.  Hey, it is Africa after all.

BofA’s thesis calls it a mid-cap gold pure-play with expected output to rise 20% per year for the next five years.  The firm believes it has outperformed peers on exploration success but also noted that its Loulo underground mining project has fallen behind schedule.

The firm also raised 2011 estimates per ADR to $4.35 from $4.21, raised 2012 estimates to $5.77 from $5.58, and raised 2013 estimates to $6.01 from $5.82.

We would note that it does have stock options and those options all the way from April-2011 out to January-2012 are more skewed to being in favor of the PUT options measured by the open interest.  Shares closed at $75.49 on Wednesday against a 52-week trading range of 70.18 to $106.44. 

The StockCharts.com chart below should show just how tough things have been on Randgold’s shareholders:

JON C. OGG