Investments: Rising gold prices will keep Randgold on track despite increasing costs

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The Independent Online



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We decided to renew our positive stance on Randgold Resources in May. At the time, our investment in the gold miner was in the red – but the valuation remained attractive, and the gold price remained high.

Without sounding triumphant, our investment is back in the black, with the stock up by more than 45 per cent since early May. The question now is whether to bank profits and move out in light of the recent stock market turmoil.

To begin with, we did not detect any nasty surprises in company's update last night. Randgold said it was confident of posting record gold production in the fourth quarter, although the news on costs wasn't as good as some investors might have hoped for. The West Africa-focused miner said its cash costs in three months to the end of September had climbed to $747 per ounce, which is well above the $645 per ounce seen in the preceding quarter.

Although not exactly pleasing, if production remains on track for the fourth quarter and rises to somewhere around 230,000oz (thus falling within the targeted full-year range), the full-year figure could be significant lower than the result in the third quarter.

Of course, not everyone shares this view. Evolution Securities, for example, highlighted that Randgold's costs are now "towards the top of the pack" of gold miners.

But we believe that, with gold prices still above the $1,700 per ounce mark, Randgold remains on firm footing. The fact that European leaders have consistently failed to come up with coherent plans to solve the debt crisis suggests that gold could spike higher in coming weeks and months as investors resume their hunt for safe assets.

On the valuation front, RBC Capital Markets, applying its base case scenario, puts the stock on multiples of about 1.6 times net asset values. This is around the same level as May, and suggests that Randgold, with its exposure to what remains an attractive commodity in light of the economic stress, may still have room to climb higher.



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Hansteen, the UK and continental European property investment company, issued what analysts called another positive update yesterday. The rent roll was stable, the like-for-like vacancy figure was lower, and recent disposals were, as analysts at Peel Hunt highlighted, "all above current valuations".

Indeed, despite harbouring worries about property markets in light the darkening economic outlook both here and on the Continent, we were reassured by the update. It showed that Hansteen was on strong ground, which will no doubt attract investors as they move away from riskier options in the sector. But it wasn't just the headline performance indicators that caught our attention.

We were impressed by both by the strength of the balance sheet – Peel Hunt notes that Hansteen has "£400-£450m" of financial firepower – and the tasty dividend yield of well above 5 per cent. The two factors should once again lure investors on lookout for safer ways to maintain an exposure to the commercial property markets. And so, while we are generally cautious on the sector, we would back this particular stock for its quality characteristics.



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Volex describes itself as a "leading provider of interconnect solutions and power products". That loosely translates to Volex being a leading, er, lead provider. The group supplies power cords and specialist cables to consumers to connect their electronic devices such as televisions as well as their fridges, and DIY tools. While the consumer arm makes up 63 per cent of sales, Volex also provides leads to companies in telecoms, healthcare and industrial sectors.

Yesterday, it reported a 14 per cent bump in first half revenues to $270.7m with operating profits up 16 per cent to $14.9m and growth across all of its divisions. Chairman Mike McTighe added it was on track to hit full-year forecasts.

With a history that stretches back over 100 years, it has grown to a company that currently has a market cap of around £180m. The future also looks pretty solid; there are good opportunities for growth, management has a handle on costs and the valuation looks relatively undemanding at 12.2 times forward earnings.