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Thursday, 08/22/2013 6:28:09 AM

Thursday, August 22, 2013 6:28:09 AM

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The last few days have been a little weak, but gold mining stocks have performed very well over the last few weeks. The volatility has been high, but gold has been able to move over crucial levels. It is important for these levels to hold if tested. Reaction to negative news will be a test. If it can survive for a few more weeks, then the sentiments will improve decisively. However, the up move has been very fast, and corrections may also be sharp. So it will be good to watch the movements carefully. Randgold has done great by moving nearly 30% from the June lows. It has corrected 4-5% from $80, which has been a strong hurdle for the stock anyway. That can be an important barrier to cross. The recent results were not too great, but the cash costs declined sequentially, and the company managed to remain in the green. The debt is very low and the company strengthened its cash liquidity through $200 million revolving credit facility. Leverage and cost of production are the key metrics to watch in case one wants to invest in gold mining stocks. Randgold has the all-in costs at around $1000 per ounce, and seems to be okay on this front. The average for the industry is $1200, with a few like Pershing Gold (PGLC) expected to have much lower costs ($800 per ounce). So Randgold seems to be comfortably placed on costs and liquidity. However, its exposure to different political environments, especially in Africa, makes the risk a bit higher. The past performance has not been too bad, and the company has been able to maintain professional relations in these environments. If the gold sector rebounds, then it will surely be a stock picker's market, and comparative analysis of the companies will also be important.
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