When the going gets tough, the gold price gets going. Last week, as North Korea’s Kim Jong-un continued to show off his nuclear prowess to the world, gold rose to new highs, closing at $1,346.25 a troy ounce on Friday.
Bubbling geopolitical tensions do not just affect the price of gold itself, but also the shares of listed gold miners, many of which have risen by 10 per cent or more over the summer.
Randgold Resources, for example, the largest gold miner on the stock market, has risen almost 20 per cent since July to the eye-watering price of 8,125p.
Precious profits: Polymetal is valued at £3.8 billion and the shares are 891½p
Midas recommended Randgold in 2008, when the price was just 2,390p so shareholders who bought back then have had a great run.
The company has an enviable reputation within the industry and the price is likely to rise further, if gold gains more ground. For investors in search of a solid gold stock, this is the best on the market, even if the price is hard to swallow.
Stockpickers in search of gold companies with a little more of an edge may like to turn their attention to Russia. The country is the third largest producer of gold in the world, mining more than 2,000 tons of the yellow metal in the past ten years alone.
Government ministers are highly supportive of the industry too, hoping to increase production materially over the next decade.
But a number of large investors worry about the country and fight shy of putting their money into Russian gold miners. Their reluctance is ironic, given that most are perfectly happy to invest in African mining stocks, which have a far greater propensity to suffer from political about-turns.
For shareholders prepared to give Russian gold stocks a go, however, the rewards can be handsome, as producers try to overcome market mistrust by offering particularly generous dividends.
For shareholders prepared to give Russian gold stocks a go, the rewards can be handsome
Highland Gold exemplifies this trend. One of the lowest-cost producers, it has three working mines and a string of future projects.
It produced just over 260,000 ounces of gold last year, delivered turnover of $306 million (£234 million), a net profit of $47 million and a dividend of 10p.
The Russian rouble has strengthened by about 15 per cent against the dollar this year, which hits Highland, as most of its costs are in roubles and most of its sales are in the US currency. Nonetheless, chief executive Denis Alexandrov said at the half-year results last week he was confident of meeting full-year guidance and committed to returning cash to shareholders.
Analysts expect turnover to stay broadly flat this year and profits to fall slightly but they have pencilled in another dividend of 10p. With the shares at 157p, that puts the stock on a yield of more than 6 per cent.
Turnover and profit are both set to rebound strongly in 2018, with the dividend likely to rise to at least 11p. Chelsea Football Club owner Roman Abramovich and his cronies are big shareholders in Highland, which scares some investors. But the firm has been listed on Aim since 2002 and should deliver strong profit in coming years.
Polymetal is also focused on growth. Significantly larger than Highland, Polymetal is listed on the main market, valued at £3.8 billion and the shares are 891½p.
Recent half-year results also alluded to the impact of a stronger rouble on costs, but production is growing and the gold price is rising. So the firm is set to increase turnover by 15 per cent this year to $1.8 billion with pre-tax profit rising 4 per cent to $588.5 million.
Last year, Polymetal paid out 27 cents in regular dividends plus a 15 cent special – equal to nearly 33p in sterling terms. This year, analysts forecast ordinary dividends of 34 cents, but there is the chance of another special if the gold price stays above $1,300 an ounce.
Polymetal is expected to produce 1.4 million ounces of gold this year and has invested heavily in a new mine in Kazakhstan to boost production further. The project is expected to start commercial sales next year, but the share price has been affected by fear of delay.
Polymetal fans say the firm is well managed and has a strong track record. It is chaired by Bobby Godsell, a former head of AngloGold Ashanti and a stalwart of the South African mining community.
Midas verdict: Gold exploration stocks are notoriously risky but Randgold, Highland and Polymetal are all significant producers, delivering sales, profits and dividends. Conservative investors should stick to Randgold, income seekers could take a punt on Highland and those with long-term horizons should take a look at Polymetal.