Randgold Resources (Price: 4652p | Target: 5016p | Rec: Hold) Randgold’s JV partner at Morila and Kibali, AngloGold Ashanti (ANG SJ, Not Rated), recently announced plans to spin out its non-South African assets into a new UK-listed company and at the same time raise $2.1bn through a rights issue to reduce debt levels.

The market has been negative on the planned raising, with AngloGold’s share price now down 13%.

We propose a simpler solution for AngloGold – sell its share of Kibali to Randgold – thereby also solving Randgold’s medium-term growth dilemma. * As part of its announcement of the 10 September, AngloGold Ashanti proposed raising $2.1bn.

This happens to be almost exactly the same NPV value we have for its 45% share of Kibali, leading to the idea of a simple solution for both parties (simple on paper, that is).

Randgold invests only in quality assets and it therefore can’t argue about the quality of this investment. * We have run a conceptual scenario whereby Randgold acquires its JV partner’s share at our full value of $2.1bn (vs.

the carrying value on ANG’s balance sheet at $1.2bn), paying for this using 40% debt ($0.9bn, lifting gearing to 16%) and 60% equity ($1.2bn, 16m or 17% more shares on issue). * The net result for Randgold would be a c.20% increase in forward gold production and a mid-20%’s increase in net income.

With the additional dilution, however, it would be EPS accretive by only 5% longer term, although 10-15% accretive in the near term (assuming nil discount on the equity component).

It would be 3% NPV accretive and, by implication, would lift our target price by 8%, to 5,436p, based on our existing methodology.

Leverage to the gold price would, of course, be increased through the larger production exposure.

Food for thought. * Our target price is based on an equal blend of NPV and three-year forward multiples.

The key risk to target price is the gold price, which in turn is dependent on geopolitical and macroeconomic issues.
To access the full note please click here Analyst: Hunter Hillcoat +44 (0)20 7597 5182
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