Political unrest could harm African gold miner

By Graeme Dickson
Updated:

 

I feel this idea could be one of the riskiest, in so far that if you had bet against the resource sector over the last twelve months, the likelihood is that you would have had your fingers burnt.

Randgold (RRS) is a FTSE 100 African gold miner and explorer that just might be showing signs of fatigue judging by the share price weakness in recent week:

Randgold resources Ltd graph

No doubt the price of gold has helped its cause, but given that the price of the yellow metal has risen by 23 per cent so far during 2010, Randgold's share price appreciation of 15.4 per cent is an indication that the stock could be vulnerable if the price of gold was to take a tumble.

Randgold has commissioned the construction of a gold mine in The Ivory Coast, but the political situation there could potentially explode.

The recent elections in which the incumbent President Laurent Gbagbo refuses to relinquish power to his opponent Alassane Ouattara, with the former accusing the latter of election fraud, this might affect its operations later down the line.

Fellow gold miner Newcrest suspended its Bonikro mine in the Ivory Coast on fears of violence, transportation and production problems.

Randgold also is not the cheapest producer in the world, with a 53 times projected price to earnings ratio for 2010, albeit its huge 23 million ounces of gold deposits will likely give the company a premium over more profitable gold miners.

Expect some support in at 5350-5400p, but through here one could expect a retracement back towards 5000p. On the upside expect resistance to kick in at 6400p.

Update

National Grid – Suggested to sell at 547.5p –the shares closed at 554p. Keep holding for now but cut if it trades higher than 568p.

Reed Elsevier – Suggested to sell at 508p, the shares have moved up with the market, settling yesterday at 529.5p. The company has benefitted from a credit rating upgrade on its debt plus the chairman buying shares will also be a positive for the company (negative for this idea). If it closes above 540p I would be inclined to exit any short position.

G4S (GFS) – Suggested to sell at 241.3p, the shares closed at 250p yesterday, primarily I believe on short covering for the year-end by various heavy hitting hedge funds. A close above 268p would be the death-knell of this idea, but for now I continue to maintain a bearish stance.

Avis (AVE) – Suggested as a sell at 210p, the stock closed yesterday at 212.6p which is where the stop is – this should be closed for a small loss.

Jardine Lloyd Thompson (JLT) – Tipped as a sell at 566p, the stock closed above the stop of 605p last Thursday and therefore should be closed.

Barclays (BARC) – Suggested to sell at 309p, the stock hit the profitable trailing stop of 276p last Thursday and should be closed.

The writer does not hold any shares or derivatives in the above mentioned companies. The material for this report comes from Alpha Terminal.

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