2 top gold stocks for a defensive dividend portfolio

The Motley Fool
Centamin gold mine
Centamin gold mine

Shares inRandgold Resources(LSE: RRS) fell by as much as 7% on Thursday after the company announced a big drop in quarterly profits.

On a sequential quarterly basis, production the FTSE 100-listed gold miner fell 9% to 310,618 ounces in the three months to 30 September, following a planned decrease in grade at its flagship Loulo-Gounkoto complex in Mali and a mill upgrade project in the first part of the quarter which impacted on throughput at Tongon.

This combined with a 17% increase in total cash cost per ounce to $667 led third quarter profits to fall 41% quarter-on-quarter to $602m.

Impressive cash generation

But despite the profit slump, cash generation remains impressive, with net operating cash flow from the third quarter totalling $118.9m, down just 11% on the previous quarter. As a result, cash on its balance sheet rose 9% to $621.6m, laying a solid foundation for future growth and increasing cash returns to shareholders.

Moreover, the West African-focused gold miner said it remained on track to achieve the top end of its 2017 production guidance of between 1.25-1.3m ounces of gold for the full year.

Randgold is also looking further ahead, with plans to develop three new projects over the next four years. As such, I believe the continuing attraction of the miner lies in its future growth prospects. Along with having some top quality assets, Randgold sets itself apart with its disciplined approach, which enables it to remain profitable with the gold price as low as $1,000 an ounce.

With a beta of just 0.33, shares in Randgold Resources looks like a defensive dividend play.

Another faller

Rival gold miner Centamin(LSE: CEY) was also a faller today. Although the company reported record gold production of 156,533 ounces for its third quarter in its quarterly update, the Egypt-focused miner said its all-in sustaining cost per ounce rose 14% on the same period last year to $732.

Additionally, its quarterly throughput from its Sukari process plant decreased 2% to 3.0m tonnes, reflecting a bottleneck in its processing side and highlighting the potential difficulties it could face with rising open-pit production going forward.

In spite of these concerns, I remain optimistic with the miner as its full year 2017 guidance was maintained at 540,000 ounces, with an expected all-in sustaining cost of $790 per ounce. Valuations are compelling too, as shares trade at just 15.2 times forward earnings, with a prospective dividend yield of 3.8%.

Safe haven asset

The price of gold has already strengthened somewhat over the past week, amid uncertainty over President Trump's choice of Fed chair. Low growth rates and growing concerns over overvalued equity and bond markets have also contributed to the lure of gold.

Of course, there's no guarantee that the price of gold would continue to rise; however, as a safe haven asset, gold is generally negatively correlated to price movements in the stock markets. As such, investing in gold miners can help you diversify your investment portfolio so that you're better protected against capital losses in a bear market.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.