Major Gold Down 15%

When we awoke this fine spring day along the Chesapeake Bay, the cherry trees were in full bloom and the fog was rising off the water…

The news greeted us like a hammer. 

“They are looting the palace,” it read in USA Today. 

“Randgold (GOLD) is down 15% in pre-market,” said Seeking Alpha.

“Soldiers Declare Coup in Mali,” declared a headline in the New York Times.

Mali appeared to be done for.

The foreign mercenaries who fought a nasty fight with Gaddafi against the rebels in Libya packed up and left when their paymaster took a bullet to the head.

This is one of those unintended consequences caused by bombing other countries. The CIA refers to it as “blowback.” And they should know.

The mercenaries were from the Tuareg tribe. Along with being a poor-selling Volkswagen, the Tuaregs are warlike nomads from the Sahara.

They were a key component of Gaddafi’s army.

After they lost the Libyan war to the U.S. Navy, they returned to Mali heavily trained, heavily armed, and looking for a fight…

The Tuaregs swiftly took over several villages in the Mali desert.

Mali forces were out-gunned and out-matched.

Until yesterday, Mali was a shining beacon of stability in West Africa. The democratically-elected President Toure was stepping down after his second term. A new election was scheduled for next month.

Disgruntled Mali army officers were tired of fighting the Tuaregs with little food and fewer weapons, and so they seized the palace last night…

President Toure managed to escape.

That’s where we stand as I write this.

Major Gold Down 15%

Randgold Resources (GOLD) is a $9.35 billion company. They have half a billion in cash and almost no debt.

The company has a forward P/E of 15, a PEG of 0.34, and a 33% profit margin.

Good Stock to Own

As you can see from this ten-year chart, GOLD was a nice buy over the past decade.

Its competitor, Goldfields (GFI), has a lower P/E — but has more than twice as much debt as it has cash.

And most telling: If you owned Goldfields over the past 20 years, you would be at about breakeven.

The ten-year gain is about 120% if you bought at the lows of 2002, but all of that gain came in 2003. Goldfields has been stagnant since then.

In contrast, Randgold has been a long-term consistent winner.

The downside is that two-thirds of its production is in Mali.

The most recent news is that the mines are running as normal. Euronews is reporting:

Gold miner Randgold Resources (RRS:London) said its operations in Mali, which account for roughly two-thirds of its production, are running normally, despite worries over unrest as renegade soldiers say they have seized power in the West African country.

The soldiers earlier went on state television to declare they had seized power in protest over the government’s failure to quell a rebellion in the north of the country.

Concern over Randgold’s Loulo, Gounkoto operations and its joint venture Morila weighed on the miner’s shares on Thursday, trading down 12 percent to 5,810 pence at around 1240 GMT. But both Randgold and other miners in the country state that their operations in Mali are running normally right now.

Chief Executive Mark Bristow, who is at the company’s Loulo complex some 350 km from the capital Bamako, said exact details were unclear, but the situation at the flagship mine was calm:

“Malians respect laws and I don’t believe this will come with a high-handed change in political direction,” he said in a statement, adding the company was monitoring the situation. “We don’t expect any subsequent governments to disregard proper and due process.”

There are eight other companies with some exposure to Mali, including one small Canadian company that only produces gold in Mali.

I expect these companies will get hit hard over the next few days.

Opportunity

That said, my readers at Crisis and Opportunity are looking for the chance to buy the best gold-mining company in the world at a significant discount.

I also expect to make a lot of money off the small, little-known companies that have significant presence in Mali.

My readers have been cleaning up in Africa lately — banking gains in Mozambique natural gas and watching our Somalia oil play hit three-year highs, as well as making money on the best exploration company in Kurdistan.

Nothing beats a coup d’état for picking up bargains…

It’s too early yet, but keep an eye on Randgold Resources.

Good hunting,

Christian DeHaemer

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Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.