Hello. Welcome to Company Focus. My name is Aamer Nawid, analyst at Fat Profits. Today I'm going to be looking at one of the newcomers to the FTSE 100, African Barrick Gold. I'm going to be looking at its resource levels, its production levels, seeing how it stacks up against fellow gold miner, Randgold Resources and just highlighting why I think African Barrick is good value.

A bit about African Barrick. It's a spin-off from a Canadian giant, Barrick Gold. It listed in London in March this year, moved up to the FTSE 100 in June. It's unsurprising, given that it is the biggest gold producer listed in the U.K. Its listing on the FTSE 100 has coincided with quite a volatile time for the gold price. And so African Barrick's share price has been quite volatile of late. As you can see from the chart, gold has come off quite significantly from its highs in mid to late June.

Whether it's a return of risk appetite for investors, whether it's the fact that inflation fears are easing a little bit, gold has come off. From where I sit, though, there is plenty of catalyst though, to drive gold forward. I still see central banks buying. Investor demand remains robust. And I still think, as far as the global economy goes, we're still not out of the woods, by any stretch of the imagination, whether it's safe haven stage or inflation hedge, gold has got plenty of tailwinds, which should protect the price going forward.

Focusing in on African Barrick, if we add African Barrick and Randgold Resources here and look at them, sort of relative to each other, you can see the gold price is the key determinate. The shape of the chart is quite similar to the gold price. It's a key determinate.

But having said that, operational developments and goings on aren't exactly a sideshow. Just when African Barrick was looking to establish a reputation for operational efficiency, a delay in accessing a higher grade of ore at one of its Tanzania mines has basically led to a downward revision in its production guidance for 2010.

Now I think the market reaction has been quite overdone here. But that's not surprising, given that African Barrick is a new kid on the block. The most gold they can produce now is 800,000 ounces this year. That's from 850,000 ounces beforehand. However, that's far from apocalyptic. I think, if you look at the first six months this year, the company has actually boosted revenues by 64 per cent. It has increased production by 23 per cent. And it has basically almost near tripled pre-tax profits.

Operational setbacks are par for the course for gold miners. Randgold Resources has had its own. Just this week, it announced that power outages at its flagship Loulo Mine in Mali, have forced a downward revision in production guidance. Now production will come in, within 5% of the 477,000 ounces which it previously had anticipated.

These supply side issues are quite important in underpinning my bullish stance for gold. Demand is key. Don't get me wrong. But supply-side tightness is also a factor which will underpin the gold price strength in the coming months, quarters and years.

When you compare African Barrick and Randgold, I think African Barrick looks at Randgold as where it wants to get to, in terms of appeal to the investor. If you look at the valuation metrics and the market caps, it's quite clear that investors are prepared to pay a lot for Randgold resources. Randgold shares trade in a forward price earnings multiple of around about 49 times. That compares with African Barrick's 13-times.

If you look at price-to-book value ratios as well, that gives you an idea of price, relative to the asset bases of the respective companies, Randgold's 2.6 versus African Barrick's 1.4. Market caps tell a quite telling story as well. Both companies own relatively similar amounts of resources and reserves, around about the mid 20m ounce level. However, Randgold's market cap is at 5bn, African Barrick's at 2.3bn, so quite a huge amount of disparity there.

I think obviously Randgold itself deserves its premium rate. And the company has got an excellent expiration track record. It's got a huge number of projects, good projects which are about to come online. It stands on really firm financial footing, as well. Gearing is low, so basically the company can just plough everything into exploration and development projects. And that basically looks after long-term earnings.

African Barrick, however, produces more gold. And given that the resources and reserves, there isn't a lot to split them, I think investors are missing a trick here, potentially. In fact, African Barrick's production is geared towards higher-grade levels. And there is an argument to say it operates in a less volatile part of Africa. Okay, gearing levels are a lot higher than Randgold's. However, the company's management have just proposed an interim dividend. That kind of shows that finances aren't exactly stretched. A lot will depend on the gold price as well, going forward.

However, I think that the market has overreacted to this recent operational setback, mainly because there are jitters in the marketplace, and the fact that African Barrick is still that new kid on the block. And given that, I wouldn't be surprised to see the shares re-rate and basically increase as investor sentiment warms towards the stocks. And I wouldn't be surprised to see African Barrick trading significantly higher than it is today, in the coming weeks, months and years.

Thank you for watching. Make sure you tune in again next week.