Share pickers have fallen out of love with Randgold Resources (LSE: RRS) during the past 12 months, a fall in bullion demand from the investment community having driven the digger’s share price lower in that period. Slumping metal values have not proved the only drag on the FTSE 100 firm’s market value though, as concerns over mining code changes in the Democratic Republic of Congo, and somewhat disappointing trading updates during that time, have tested investor resolve.
However, glass-half-full investors will be hoping that the recent uptick in Randgold’s share value marks the start of a recovery. Gold prices has remained broadly unchanged either side of the $1,200 per ounce marker over the past month, but the metal digger has jumped after it sealed a monster merger with fellow mining colossus Barrick Gold to create the world’s largest gold miner, with total proven and probable attributable gold reserves of some 78m ounces.
It’s no surprise that the market responded to news of the creation of the new entity, ‘New Barrick Group’, with glee. As the firms said in their joint release, the tie-up “will create an industry-leading gold company with the greatest concentration of tier one gold assets in the industry, the lowest total cash cost position among senior gold peers, and a diversified asset portfolio positioned for growth in many of the world’s most prolific gold districts.”
The deal, which is expected to be completed by the end of next March, will see Barrick shareholders assume 66.6% of New Barrick, and Randgold shareholders the remaining 33.6%.
Dividends to continue dancing higher
The financial might of this combined entity also bodes extremely well, and not only in terms of advancing its exploration work among some of the planet’s best gold resources and bringing them online.
Indeed, New Barrick’s mighty management team has already suggested that delivering brilliant dividend growth to its shareholders sits extremely high on the agenda, the company publicly stating last week its intention of “[growing] its dividend from the Barrick level… over time, underpinned by stronger cash flow generation, additional overhead cost savings, asset sale proceeds and lower interest costs.”
I’ve been lauding the exceptional earnings and dividend outlook for Randgold shareholders for some time now, helped by the stable environment for bullion prices as well as the impact of its jumping production levels. The mega-merger now gives both profits and payout prospects at the gold digger a serious shot in the arm.
In the meantime, a payout of 278 US cents per share is still forecast by City analysts for 2018, a figure that yields an inflation-mashing 4%. A forward P/E ratio of 23.9 times is clearly not as attractive, sitting outside the accepted value territory of 15 times and below. Still, I’d consider that reasonable to grab a slice of New Barrick and its incredible investment potential.